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Instant Insight: We Remain Long Term Bulls On Germany

Editor's Note: This is an excerpt from Hedgeye research written earlier this morning. Click here for more information on how you can become a subscriber.

 

Instant Insight: We Remain Long Term Bulls On Germany - zen44

 

Germany is one equity market we want to highlight this morning.

 

The DAX continues to be in a bullish formation and we remain long term bulls. Exports account for 47% of German GDP, so Mario Draghi’s weak EUR policy is obviously a huge TAILWIND for Germany. In addition, their fundamentals are outperforming peers and are showing positive lift (business & economic confidence; IP, factory orders, etc).

 

Even as the DAX has had a major run over the past six months, over the past five years, it has dramatically underperformed its U.S. counterparts.  On a related note, tomorrow at 11am, our European Analyst Matt Hedrick will be presenting a 50-page deck that outlines that continued case to be long of German equities.

 

Ping sales@hedgeye.com for access.


Cartoon of the Day: Super Dollar!

Cartoon of the Day: Super Dollar! - currency cartoon 04.13.2015

The U.S. Dollar trades near decade-plus highs versus the Euro.


VIDEO | Macro Minute: Why We're Still Long German Equities

 

In this Macro Minute, Director of Research Daryl Jones highlights the key points of Hedgeye's bullish thesis on German stocks ahead of our institutional conference call tomorrow at 11:00AM ET (contact sales@hedgeye.com for access).


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VIDEO | Hedgeye's Dale Reveals Key Points from Chinese Trade Data

 

In this brief excerpt from this morning's Macro Show, Hedgeye Macro Analyst Darius Dale offers his most important takeaways from the latest Chinese trade data, whether to expect more action from central planners, and why seasonality is a factor for these numbers.


Retail Callouts (4/13): Golf -- Why It's Broken

Takeaway: Yeah, there's hype around the Masters, Spieth and UA. But we need to find another 5mm golfers (25%) to get to pre Tiger-gate levels.

WHY GOLF IS BROKEN 

While everyone basks in Jordan Spieth’s lights-out victory this weekend in Atlanta, let’s keep one thing in perspective about the Golf Industry. We’re seeing a massive bifurcation in participation, and it’s not particularly healthy. Simply put, a significantly smaller number of golfers are playing a far greater number of rounds. The number of golfers in the US has declined by 5mm, or 16%, in the past six years. On the flip side, the number of rounds per player is up 12% to 19 rounds per year over that same period.

 

Two factors explain away 80% of this drop. One is the ’07-’09 recession, which took the marginal golfer out of the game (‘core’ golfers will golf in any economy, weather, zombie apocalypse, or whatever…). Then just as the US emerged from a crippling recession (6/09), Tiger Woods fell from grace (11/09), thereby removing the biggest positive mass-marketing force the game has ever seen.   

 

Fortunately, what we call ‘core’ golfers (plays at least 8 times a year) accounts for about 56% of golfers, and 85% of spending. For the most part, this is a healthy demographic. But someone who plays 20, 30, or even 50 rounds per year almost certainly does not go to a Golf Galaxy or a Dick’s. They likely belong to a Club, and buy gear at the Club’s pro shop.

 

It’s the ‘non-core’ golfer (less than 8x per year) who uses mass channels, and that group has been decimated – accounting for almost all the decline in players over the past six years. Before the Recession/Tiger Debacle, there were 13.2mm ‘non-core’ golfers. Now there’s closer to 10mm. That’s roughly a 25% decline in a customer base for the mass golf retailers.   

 

Could they come back? Of course. But we’re going to need a lot more than Tiger passing the torch to Rory McIlroy, or UA’s Spieth crushing the field at the Masters.

 

Retail Callouts (4/13): Golf -- Why It's Broken - 4 13 chart2

Retail Callouts (4/13): Golf -- Why It's Broken - 4 13 chart3

 

 

UA - Jordan Spieth is Masters Champ, Big Win for UA

 

Takeaway:  Spieth and Under Armour had a good week last week.  With Spieth leading the masters after every round and ultimately winning by 4 shots, the UA logo, which is seen on every piece of Spieth's clothing, spent many hours front and center on national TV. 

In January, Under Armour presciently signed a new 10 year contract with Spieth and just 3 months later he wins the season's first major championship in record fashion. Spieth's contract likely had built in performance incentives which means UA will have to pay him extra after his victory, but after showcasing the brand at the top level Kevin Plank will be happy to write him the check.

Retail Callouts (4/13): Golf -- Why It's Broken - 4 13 chart1

 

OTHER NEWS

 

SHLD - REIT

(http://searsholdings.mediaroom.com/index.php?s=16310&item=137360)

 

Retailers Are Under Fire for Work Schedules

(http://www.wsj.com/articles/retailers-under-fire-for-work-schedules-1428890401)

 

TGT - Target Canada closing, ending 2-year foray

(http://www.ctvnews.ca/business/target-canada-closing-ending-2-year-foray-1.2323222)

 

AMZN - Amazon.ca drops free shipping for remote customers

(http://www.cbc.ca/news/canada/north/amazon-ca-drops-free-shipping-for-remote-customers-1.3026859)

 

AMZN - Amazon Acquired Data Migration Startup Amiato

(http://www.bloomberg.com/news/articles/2015-04-10/amazon-acquired-data-migration-startup-amiato)

 

China Restricts Hong Kong Visits

(http://wwd.com/business-news/government-trade/china-restricts-hong-kong-visits-10110704/)

 

Sprint RadioShack launches in 1,435 stores

(http://www.retailingtoday.com/article/sprint-radioshack-launches-1435-stores)

 

 

 

 


Europe, Germany and China

Client Talking Points

EUROPE

European equities are mostly flattish to up small across the board. The two outliers are Greece up about 1% and Russia up about 1.3%. Volume in European equities is pretty quiet, at about 2/3 of the one month average. The Euro continues to be in free fall, pushing the low end of our risk range, down about 45 basis points. Our immediate term risk range for the Euro is 1.05-1.08.

GERMANY

Germany is one equity market we want to highlight, it continues to be in a bullish formation and we remain long term bulls. Exports account for 47% of German GDP, so weak EUR policy is a huge TAILWIND for Germany. German fundamentals are outperforming peers and showing positive lift (business & economic confidence; IP, factory orders).

CHINA

The Shanghai Composite Index is up about 2.7%, it is reportedly up on speculation of increased stimulus. The World Bank effectively came out and said that China will have to do some stimulus to sustain its growth rate. March trade data was kind of disappointing across the board, exports down about 15% year-over-year from 48.3%. March trade balance was $3.08B from $60.62B, this is the narrowest balance since FEB 2014.

Asset Allocation

CASH 32% US EQUITIES 12%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
MTW

Manitowoc  (MTW) is splitting the business into two companies. While the crane business receives the most attention in part due to its cyclicality and because they are well, more noticeable, Manitowoc’s other business, Foodservice equipment, is the larger of the two in terms of operating income (60% vs. 40% for Cranes). Several indicators are pointing towards upward momentum for MTW’s Foodservice business. Restaurant same store sales have benefitted since the drop in oil prices. Furthermore, an indicator by the National Restaurant Association, RPI Capital Expenditures Index, has surged recently in part due to lower fuel prices driving restaurant traffic and restaurant owners’ outlook.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was again strong with Pending Home Sales, HPI and Purchase Demand all accelerating to close out March. Pending Home Sales rose +3.1% sequentially in February with signed contract activity up a remarkable +12% YoY, taking the index to a new 19-month high. Mortgage Purchase Applications – the most real-time, high frequency housing demand indicator - rose +5.7% WoW on the back of last week’s +4.9% advance and accelerated to +7.6% on a year-over-year basis. HPI: The Case-Shiller 20-city series showed home prices grew +4.6% year-over-year in January.  A stabilization/inflection in home price growth is important as housing related equity performance tracks the slope of home price growth strongly.

 

TLT

It was another week of declining long-term yields getting you paid on the long-side of Low-volatility Long Bonds (TLT). To reiterate our view over the longer-term, we pin a good chance the U.S. Dollar will reach new highs ($120 anyone?) with the probably of long-term Treasury yields reaching all-time lows very much in play.

Three for the Road

TWEET OF THE DAY

Real Conversations: Roach on Global Imbalances, Risks and How It... https://www.youtube.com/watch?v=JqCyo_0yxz8 via @YouTube

@KeithMcCullough

QUOTE OF THE DAY

Work hard in your silence. Let your success be your noise.

Frank Ocean

STAT OF THE DAY

92.1% of software developers are men.


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