All Quiet?

“It is very queer that the unhappiness of the world is so often brought on by small men.”

-Erich Maria Remarque, “All Quiet on the Western Front”


Aside from January 2nd, yesterday had the lowest volume in U.S. equity markets for the year. Was it complacency? The calm before the storm?  Or, was it simply a non-event and just a quiet day in the markets?


At the start of this note, we used a quote from the classic World War I novel, “All Quiet on the Western Front” written by German World War I veteran Erich Remarque. Far be it from us to compare stock market operating to operating in the brutal trenches of World War I, but certainly many of us do feel like we are getting up and going into battle every morning, even if in an obviously more figurative and proverbial sense.


So, as you dug into your Bloomberg and Excel trenches yesterday, how did you interpret the almost 11% ramp in equity volatility?  Is it possible that the world’s omnipotent central bankers are Remarque’s “small men”? Is it possible that in their attempt to manage the global economy, they will ultimately lead to its demise?


Those questions will largely be answered in hindsight for most stock market operators. But in the meantime, keeping our eyes on the minefield ahead is as important as it has ever been in the last five or more years. As the Chart of the Day below shows, volatility can and will pick up dramatically.


All Quiet? - z45


Back to the Global Macro Grind...


Right now, “quiet” is the best euphemism for the morning news in  global macro markets.  Probably the most disconcerting news(at least for those of us who hope for continued stock market complacency) is coming out of Greece.  Rumors are now running rampant that Greece may default on its debt if it can’t reach a deal with its main creditors (read: the Troika) by the end of the month.


Now to be fair, the Greek Prime Minister’s office adamantly denied that it would pursue the strategy of defaulting on its debt.  Conversely, the IMF, who is a key creditor, seems to be leaking to every major newspaper that Greek negotiations are not working out and that there is real potential of a default.   So, what is the truth in this Greek tragedy of a negotiation?


Like most negotiations led by bureaucrats, discerning the reality versus negotiation posturing is difficult at best.   Certainly, the markets do not seem overly concerned about adverse outcomes.   This is a bit surprising given how heated the rhetoric has become combined with the fact that Greece has more than 315 billion in Euro denominated debt outstanding. 


Currently, about 78% of that debt is owned by the Troika – EU owns 61%, ECB owns 8%, and the IMF owns 9%.  Perhaps they are comfortable that a Greek default will have no systematic effects.  (Of course, many said the same about Lehman Brothers, when those negotiations failed.)  Certainly for the Greek government though, there is no going back after a default.  As IMF Managing Director Christine Lagarde very accurately stated:


“Defaulting, restructuring, changing the terms has consequences on the signature and the confidence in the signature.”


Inasmuch as the outlook for Greece is bleak and the consequences for a Greek default are real, in much of Europe things actually appear to be getting better on the margin.  Later today at 11am (ping for details), we will be walking through the case to remain bullish on Germany.


The German finance ministry bolstered this case, albeit marginally, when they upped their outlook for growth in 2016 to 1.6% from 1.5% in 2015.  At the same time, they emphasized that overall government debt to GDP should fall to around 70%.  Clearly, those aren’t GDP growth rates that get any of us overly excited. But much like a company, we do like the set-up of a country that can beat top line expectations.


China, on the other hand, seems to be faced with the opposite scenario of German.  GDP appears poised to miss expectations and debt is set to accelerate.  On the Chinese debt front there are actually two important points to highlight:


  1. According to a Bloomberg report, margin debt in China, when adjusting for the relative size of the markets, is double that of the NYSE.   With the Shanghai Composite trading at 20x earnings and GDP slowing, that is a tad disconcerting; and
  2. According to a BofA index, leverage for Chines companies is at the highest level since 2004 and debt relative to assets is that the highest level since 2007.

By any measure, that is a lot of speculative debt for a country whose growth is slowing.


So, even if things are all quiet on the Western front, they may not be on the Eastern economic front in Asia for long.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-1.98%

VIX 13.03-16.08
USD 98.62-100.19
EUR/USD 1.05-1.07
Oil (WTI) 47.65-53.98 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


All Quiet? - 04.14.15 Chart

Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY

Takeaway: WWW Q1 online trends very strong. New adidas boot is "lightest ever". Chain store sales and ChannelAdvisor comps.



WWW - Q1 Online Traffic Strong


Takeaway: Here are 3 charts that look at the online traffic trends for 3 of WWW's biggest brands: Sperry, Merrell, and Saucony. We've been cataloging this data for close to two years for 250 brands and retailers. And, this is the first time we've seen WWW firing on all cylinders. With 3 of the most meaningful needle movers in the company's 14 brand portfolio registering a traffic rank up 30%+ YY. Traffic rank is a calculation of both unique visitation and page visits/user that denotes the relative performance of a site compared to the internet in aggregate.


Online is still a tiny piece of the WWW pie, only about 4% of total sales, but when we synched the quarterly traffic trends with the aggregate sales growth in the quarter for each brand  (at the bottom of each chart) the trend has been spot on with the slope of the traffic rank line.


WWW is investing heavily in this channel for good reason as it will carry the bulk of the growth (at least in the athletic portion) for the next 6 years. If WWW can execute here, that's upside to the international opportunity as the company continues to scale its PLG brands onto its Global infrastructure.


Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY - 4 14 chart1

Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY - 4 14 chart2

Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY - 4 14 chart3



AdiBok - adidas Launch the Lightest Football Boot Ever



Takeaway: These very well could be the best soccer boots on the planet. But, we couldn't help making the connection between Adi's 'lighter and faster' claims and the old PF Flyers. The fact that it's the lightest boot on the market may help with the run faster claims.

Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY - 4 14 chart7


Chain Store Sales

Takeaway: This is the first really solid number we've seen reported by ICSC in 2015 to date. With numbers up on a 1yr, 2yr, and 3yr basis. The 2yr number at 3.1% was the best reading we've seen against tougher compares that started in the first week of April.

Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY - 4 14 chart5

Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY - 4 14 chart6





EBAY, AMZN - March Acceleration for both AMZN and EBAY in ChannelAdvisor Comps

Retail Callouts (4/14): WWW, AdiBok, Chain Store Sales, AMZN, EBAY - 4 14 chart4


BBY - Best Buy Announces Retirement of Board Chairman, Hatim Tyabji, Names Hubert Joly as Chairman & CEO



ASOMF - ASOS Board Change


AMZN - Amazon, HarperCollins Reach Multiyear Publishing Deal



TGT - Target Appoints Veteran Grocery Leader, Anne Dament, to Drive Food Reinvention



PLCE - The Children’s Place Rejects Activists’ Board Nominations



SPLS, SHLD - Sears board member new addition at Staples



Academy does deal with Cardinals



WMT - Walton family to sell part of Wal-Mart stake



Stuart Weitzman names president, global retail



Bull Fighters

This note was originally published at 8am on March 31, 2015 for Hedgeye subscribers.

“It is necessary for a bull fighter to give the appearance at least of respectability.”

-Ernest Hemingway


That’s what I was thinking about as I read Ben Bernanke’s first blog yesterday. He’s just looking for what Greenspan continues to look for – respectability (and speaking engagement fees).


The aforementioned quote comes from a beauty by Hemingway titled “The Capital of The World”, where a wanna be bull fighter dies an unceremonious death. “He died, as the Spanish phrase has it, full of illusions.”


That’s how #history remembers most ideological attempts to centrally plan things like growth, inflation, and economic gravity. Creating the illusion of growth (inflation) can only last so long. After that, c’est le #deflation.

Bull Fighters - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


You don’t like my mixing of Spanish and French metaphors? Read Bernanke’s blog – and once you’re done, send me an email that tells me, in English, what he was trying to say (be forewarned, it will take you a while). Here was the highlight:


"The state of the economy, not the Fed, ultimately determines the real rate of return attainable by savers and investors.”

-Ben Bernanke




“So”, per The Bernank, the 0% rate of return on my savings account for the last half-decade was not determined by the Fed afterall! The man had nothing to do with it. It must have been the weather?




Moving along to macro markets this morning (which by the way, no buy-sider of respectability has ever given a former Fed person the reigns to successfully run real money – ever think about why?):


  1. US Dollar bounced right off immediate-term TRADE support = check
  2. US interest rates have fallen back to 1.95% on the UST 10yr = check
  3. US stocks, led by great #HousingAccelerating news, bounced into month-end = check


Backcheck, forecheck, paycheck! (I’m going all hockey blog lingo on you now)


In all seriousness, let’s go through some of the why on the these three macro moves:


  1. USD up on Burning Euros (-1% this morning post underwhelming European inflation and employment data)
  2. Global #Deflation Bulls continue to realize that the best way to get paid on their theme is lower-rates-for-longer
  3. You didn’t think they’d let the SP500 finish Q1 down for the YTD, did you?


Oh, you want some more meat on that European “data” bone?


  1. Eurozone CPI for March was -0.1% y/y vs. -0.3% in FEB
  2. Italy’s CPI for March didn’t budge, at all, at -0.1% y/y vs -0.1% in FEB
  3. Eurozone unemployment was 11.3% vs the prior 11.2% reported


In other words, much like you’ve seen in Japan for decades… in stark contrast to European stock and bond markets ramps (German DAX +23.5% YTD and German 10yr Bund Yield 0.20%), the European economy hasn’t done jack.


I guess Bernanke would tell European savers to sit on that for the next 3-5 years, and like it. If some poor bastard in Southern Italy has no savings to speak of, he needs to dial-up the Medici Bros on a rotary phone and start an online stock trading account!


Back to more local matters, like the relationship between US Dollars and American Purchasing Power, Consumption, and Savings… what Heli-Ben didn’t quite get (or blog about) was that these very important things are positively correlated.


#StrongDollar --> Slowing Inflation (think cost of living) --> Rising Real Consumption --> Moarrr Savings


I swear, this is rocket science, eh? Don’t forget that the 1983-1989 and 1993-1999 periods of > +4% real US GDP growth was not only sustainable for more than a few quarters – but it punished those who invested in Down Dollar Inflation Expectations assets.


This is not obvious to a lot of people right now because many of them would have to accept the responsibility in recommendation of maintaining a Devalued Dollar (post Nixon/Carter 40yr lows = 2011-2012) throughout Bernanke’s un-elected reign.


But I digress…


Because I am not only a Bull Fighter of Euros, Commodities, and levered expectations in Energy Stocks & Bonds, but I am a bloodied Mucker, who only gets respect for being held to account for my actions, each and every day.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-2.01%
SPX 2059-2117
RUT 1236-1277
DAX 11873-12168
USD 96.60-99.89
EUR/USD 1.05-1.09
Oil (WTI) 43.90-50.62

Gold 1161-1208


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bull Fighters - Chart of the Day

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CALL INVITE | Germany: Still Bullish

Today at 11am ET Hedgeye’s European analyst Matthew Hedrick will lead a discussion on why we are still bullish on the German equity market.


In the wake of ECB President Mario Draghi’s big QE announcement in January, we’ll discuss the impact of QE, where we see policy measures heading, and why we see Germany as the biggest ‘winner’ of central bank intervention.


Watch a short segment  below in which Hedgeye's Director of Research, Daryl Jones, highlights the key points of our bullish thesis on German stocks ahead of today's call.



  • Draghi’s influence on the capital markets vs the real economy
  • Why Germany’s economy is poised to most benefit from QE
  • An overview of German fundamentals
  • Key investment conclusions across durations


  • U.S. Toll-Free Number:
  • U.S. Toll Number:
  • Confirmation Number: 39466899
  • Materials: CLICK HERE (the slides will be available approximately one hour prior to the start of the call

CALL INVITE | Germany: Still Bullish - Draghi cartoon 01.20.2015

April 14, 2015

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Takeaway: Asia is the bright spot for RCL and with earnings next Monday, can it lift results?

  • According to our sources, bookings have been hot for RCL’s ships in Asia (Mariner, Voyager, Quantum, Explorer, Legend) and likely above management expectations.
  • Almost all of the shorter dated itineraries have been completely sold out for the year.
  • There are still available cabins for the longer-dated itineraries but they account for only a fraction of RCL’s Asia business.
  • Pricing, on the other hand, have been mixed, with the older fleet underperforming Quantum by a wide margin


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