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April 2, 2015

April 2, 2015 - Slide1

 

BULLISH TRENDS

April 2, 2015 - Slide2

April 2, 2015 - Slide3

April 2, 2015 - Slide4

April 2, 2015 - Slide5

April 2, 2015 - Slide6

 

BEARISH TRENDS

April 2, 2015 - Slide7

April 2, 2015 - Slide8

April 2, 2015 - Slide9

April 2, 2015 - Slide10

April 2, 2015 - Slide11
April 2, 2015 - Slide12

April 2, 2015 - Slide13


REPLAY: The Macro Show, Live with Keith McCullough

Watch The Macro Show live with Hedgeye CEO Keith McCullough.

 

The Macro Show is Hedgeye TV’s live, turbocharged and interactive daily pre-market show where we break down what’s happening in the markets and Global Macro and offer our insight on how you, the investor, can position yourself for the day ahead. We share 15 minutes or less of prepared market analysis and commentary and then answer your questions in a live Q&A session.

 

 


Cartoon of the Day: Three Little Pigs (And a Bull)

Cartoon of the Day: Three Little Pigs (And a Bull) - Housing cartoon 04.01.2015

Hedgeye reiterates our bullish call on Housing made previously in Investing Ideas.


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Keith's Macro Notebook 4/1: Europe | U.S. Dollar | UST 10YR

 

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


Retail Callouts (4/1): FL, NKE, UA, AdiBok, RH, WMT, SHLD

Takeaway: Nike up to record 73% of FL purchases in 2014. RH expanding its Greenwich footprint. WMT cutting vendors to pay employees.

COMPANY HIGHLIGHTS

 

FL, NKE - Nike % of purchases up to 73% in 2014

(https://www.sec.gov/Archives/edgar/data/850209/000114420415019391/v403865_10k.htm)

 

Takeaway: Nike purchases increased 500bps from 68% to 73%, the largest bps jump we've seen since 2008 and now sits at the absolute highest level in forever. That doesn't sound like good risk management to us. Because of AdiBok's utter collapse and the absence of a clear cut number #2 in the US market, we don't know that FL has any other option. The best possible environment for an athletic retailer is when the major brands are heavily competing for shelf space. Nike and UA (to a lesser extent) won't have to fight as hard, or spend as much, to get incremental space at FL. Foot Locker wants nothing more than to have a strong staple of contenders looking to take a few points of share. It just doesn't have that luxury.

 

It's not like Nike and Brand Jordan are the only brands on FL shelves, its that FL's new concepts (House of Hoops, Fly Zone, and Yard Line) are 100% Nike. It's these concepts that FL is looking to for growth in its core business, which means the Nike allocation goes up as remodels continue. We can't say Nike will back away from this strategy because it increases its distribution footprint and showcases its tier 1b product (tier 1a is saved for its own stores and website) with very little cost of capital. But, if there is one company you don't want to be monopolized by it's NKE. Especially as it continues to ramp its own direct business after a multi-year investment cycle.

 

Lastly on gross margin, over the past 5 years we've seen gross margin head north as Nike percent of purchases has climbed about 1000bps. This seems counter intuitive due to the leverage Nike typically exerts on its partners, but we'd argue that this is due in large part to Nike's ability to drive traffic thus taking the attachment rate higher for things like socks, headwear, etc. But, what happens when there is nothing but Nike to attach to? We think it means FL will see the full brunt of the IMU pressure the company has been calling out.

Retail Callouts (4/1): FL, NKE, UA, AdiBok, RH, WMT, SHLD - 4 1 chart1

 

RH - Adding 2nd Store In Greenwich Market

(http://www.greenwichtime.com/business/article/Restoration-Hardware-to-open-second-shop-on-6168593.php)

 

Takeaway: Link to full note CLICK HERE

 

WMT - Wal-Mart Ratchets Up Pressure on Suppliers to Cut Prices

(http://www.wsj.com/articles/wal-mart-ratchets-up-pressure-on-suppliers-to-cut-prices-1427845404)

 

Takeaway: 1) Walmart is cutting vendors again, but this time to pay employees instead of customers. 2)Not good for the rest of retail when the giant starts ratcheting down on suppliers. 3) This is exactly why we won't see commodity deflation (especially cotton) flow through on the P&L. WMT will set the tone and everyone will follow causing the industry to compete the benefit away.

 

 

OTHER NEWS

 

SHLD - REIT

(http://searsholdings.mediaroom.com/index.php?s=16310&item=137358)

(http://searsholdings.mediaroom.com/index.php?s=16310&item=137357)

 

BURL - Burlington Stores, Inc. Announces Secondary Offering of Common Stock

(http://burlingtoninvestors.com/press-releases/Press-Release-Details/2015/Burlington-Stores-Inc-Announces-Secondary-Offering-of-Common-Stock-3312015/default.aspx)

 

MW - Report: Jos. A. Bank lays off 122 headquarters employees

(http://www.chainstoreage.com/article/report-jos-bank-lays-122-headquarters-employees)

 

TGT - Target releases fresh merchandise in rapid-fire 2015 overhaul

(http://www.fierceretail.com/story/target-releases-fresh-merchandise-rapid-fire-2015-overhaul/2015-03-31)

 

LULU - Lululemon Athletica Inc’s new men’s ‘anti-ball crushing’ pants grab media buzz and sales

(http://business.financialpost.com/news/retail-marketing/lululemon-athletica-incs-new-mens-anti-ball-crushing-pants-grab-media-buzz-and-sales/)

 

RL - Ralph Lauren, USPA Continue Legal Squabbling

(http://wwd.com/business-news/legal/ralph-lauren-uspa-continue-legal-squabbling-10104974/)

 

CBK - Macellum Delivers Letter to the Chairman of Christopher & Banks Corporation

(http://www.prnewswire.com/news-releases/macellum-delivers-letter-to-the-chairman-of-christopher--banks-corporation-300059136.html)

 

Macerich Rejects Enriched Simon Offer

(http://wwd.com/business-news/financial/macerich-rejects-enriched-simon-offer-10105982/)

 

Torrid opening Chicago flagship; on track to open 60 stores in 2015

(http://www.chainstoreage.com/article/torrid-opening-chicago-flagship-track-open-60-stores-2015)


Checking In With TACRM

Our Tactical Asset Class Rotation Model (TACRM) remains an invaluable input in our research process. Listed below is a summary of noteworthy observations from the latest refresh (CLICK HERE to download the presentation):

 

  • At the primary asset class level:
    • Investors continue to reduce their marginal exposure to every primary asset class except DM Equities. (slide 10)
    • For Commodities in particular, investors continue to reduce their marginal exposure at an accelerating rate. (slides 8 and 10)
    • That said, however, the rotation out of EM Equities and FX has clearly stabilized. (slide 8)
    • In fact, EM Equities is currently the asset class with the highest degree of factor exposures exhibiting positive VWAP momentum across multiple durations. The rally in Chinese equities is largely responsible for this. (slide 7)
    • Investors’ marginal exposure to DM Equities is especially crowded – in the 98th percentile of all readings on a TTM basis and in the 87th percentile of all readings since the start of 2008. (slides 9 and 10)
    • Investors are reducing their exposure to Cash – which is comprised solely of the USD and the VIX – at an accelerating rate, as well. (slides 8 and 10)
    • It would appear a wide-ranging fear of an unwind of consensus positioning (i.e. long USD, long European Equities, short Treasury Bonds, short Commodities and short EM) is driving the aforementioned broad de-risking.
    • We aren’t yet of the view that such an unwind will occur in the near term. That said, however, it’s also not at all difficult to connect the dots on that occurrence given our intermediate-term outlook for U.S. growth and the Fed’s likely response to that.
    • Per Keith's commentary this AM: “Counter-TREND moves have sucked a lot of people in and ripped them the other way, fast… so we just need to be patient until TREND signals confirm [any nascent] phase transitions.”
  • At the individual factor exposure level:
    • Commodities, FX and EM Equities continue to dominate the list of exposures exhibiting the largest degree of negative VWAP momentum across multiple durations. (slide 5)
      • It’s worth noting that the velocity of the downtrends across the preponderance of FX exposures in this list is clearly decelerating. That is bullish, on the margin. (slide 5)
    • DM Equities and Chinese Equities dominate the list of exposures exhibiting the largest degree of positive VWAP momentum across multiple durations. (slide 5)
      • It’s worth noting that the velocity of the uptrends across each of the Chinese Equity exposures in this list is clearly accelerating. That is an especially bullish signal. (slide 5)
    • Within the U.S. Equity Market:
      • There is a clear divergence in momentum within the Size and Economic Cycle style factors. Recall that TACRM tracks 47 unique sector and style factor exposures within the domestic equity market in order to formulate a robust mosaic of market color.
      • With respect to Size:
        • Eight of the ten exposures exhibiting the largest degree of negative VWAP momentum across multiple durations are large-cap equities: IYT, XLB, OEF, XLI, XLU, XLK, IEZ and IWD. (slide 6)
        • Three of the ten exposures exhibiting the largest degree of positive VWAP momentum across multiple durations are small-cap equities: IWO, IWM and IWM. (slide 6)
      • With respect to the Economic Cycle:
        • That Transports (IYT), Industrials (XLI) and Tech (XLK) are among the eight factor exposures exhibiting the largest degree of negative VWAP momentum across multiple durations, while Retailers (XRT) and Homebuilders (ITB) are the top two  factor exposures exhibiting the largest degree of positive VWAP momentum across multiple durations speaks volumes to the divergence between souring late-cycle data (e.g. CapEx and Industrial Production) and firming early-cycle data (e.g. Consumption and Housing) that we continue to highlight. (slide 6)

 

In the context of the continued uptrend in cross-asset volatility (GFSI) – as well as the uptrend in the volatility of volatility (VVIX) – we hope you find these quant signals helpful in your risk management process. As always, feel free to ping us with questions.

 

Checking In With TACRM - 1

 

Best of luck out there,

 

DD

 

Darius Dale

Associate


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