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Speaker Series Call - The Impact of Currency Wars on S&P500 Earnings

Takeaway: We are hosting a call with Jack Ciesielski, the CEO of the Accounting Observer on the ongoing financial impact of global currency wars.

The Financials team at Hedgeye is hosting the call with Jack Ciesielski as part of their Guest Speaker Series. If you'd like to request a trial of the team's work please email 

 

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We will be hosting a Speaker Series call with Jack Ciesielski, the CEO of the Accounting Observer (AO) next Tuesday, June 9th at 11 a.m. EST. Our topic will be the ongoing impact of overly volatile foreign currencies on the financial statements of some of America's most important companies. While most analysts and portfolio managers are up-to-speed on the earnings impact of FX translation, there are less obvious consequences including: 

  • Devaluation of foreign cash reserves which impacts cash flow
  • Common equity degradation which increases financial leverage
  • ROE implications depending on the direction of financial leverage

 

The AO will outline which sectors in the S&P 500 have the most sensitivity to various FX implications and also distill impact to the company specific level for the largest constituents of the index.

 

Speaker Series Call - The Impact of Currency Wars on S&P500 Earnings - chart1

 

Speaker Series Call - The Impact of Currency Wars on S&P500 Earnings - chart2

 

Speaker Series Call - The Impact of Currency Wars on S&P500 Earnings - chart3

 

CLICK HERE to add this call to your Outlook Calendar for Tuesday, June 9th at 11 a.m. EST or simply dial:

 

Toll Free Number:

Direct Dial Number:

Conference Code: 39894189# 

Call Materials HERE

 

About Jack Ciesielski and the Accounting Observer:

 

Jack Ciesielski is the owner of R.G. Associates, Inc., an investment research and portfolio management firm located in Baltimore, MD. Mr. Ciesielski is the publisher of The Analyst's Accounting Observer, which is an accounting advisory service for security analysts. Before founding R.G. Associates in 1992, Jack spent seven years as a security analyst with the Legg Mason Value Trust. Prior to that, he worked in the accounting profession as an auditor with Coopers & Lybrand, as an internal auditor with Black & Decker, and as an educator at the University of Maryland. The AO focuses on deep dive issues to assist analysts and portfolio managers to completely understand a financial problem set.  

  

 




McCullough: Front-Run the Sell-Side Herd and Get Paid

 

In this brief excerpt from today's edition of The Macro Show, Hedgeye CEO Keith McCullough answers a subscriber’s question on how much merit to give sell-side consensus estimates. Keith explains that our job as risk managers is to front run the consensus circus act and move ahead of the herd to get paid.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

RTA Live: June 1, 2015

 


Retail Callouts (6/1): RL- New Idea Vetting Book, RH

Takeaway: RL - New Vetting Book. Call to be held Monday June 8th, 1:00 pm. RH - Management Incentivized to Deliver

RETAIL IDEA LIST

Retail Callouts (6/1): RL- New Idea Vetting Book, RH - 6 1 chart1

 

 

RL - RALPH LAUREN IDEA VETTING BOOK -- JUNE 8

 

Why We’re Doing This Now

Our next Idea Vetting Book will be on Monday, June 8th, and the topic will be Ralph Lauren. This is hardly a new name for us -- having covered it for the better part of two decades.  But we can't remember a time when there was more opacity in the model, less investor confidence in the Brand, or in management’s ability to execute on this story.   Ultimately we think there are critical questions to answer over both short-term and long-term durations, and we think we have the tools, insight, and historical perspective to more fully flesh out the debate.

 

Remember that Mr. Lauren in 75 years old, and is the sixth oldest CEO in the S&P. But his next layer of executives have only been at the company for an average of 3-5 years, which is very young for a company like this. It's no surprise then that the company just finished 'an investing year' and then promptly started another one.

 

Importantly, Mr. Lauren has 81.5% of the voting power at RL. He owns the Board outright, and details around its long-term strategic plan (presuming there is one) are extremely scant.  In addition to reviewing some of the near-term puts and takes for Ralph, we're also going to review some of the bigger strategic options facing the company (whether RL knows it or not).

 

More details to come.

 

 

RH - Management Incentivized to Deliver

 

We received some questions about RH's proxy statement (filed last Thurs) -- which is no surprise as people seem to be obsessed with everything and anything related to Gary Friedman, and his compensation is no exception.  According to this years proxy statement the RH CEO didn't take a pay bump for the 2nd straight year, but the top end of his achievable bonus scale climbed by 25%.

 

The way his bonus payout is structured, Freidman would take home a fixed percentage of his base pay dependent on the RH's performance. 'On plan' equates to a bonus equal to 100% of his annual salary. At 2x the current internal plan the payout climbs to 250% of the annual salary. Meaning if the company beats its internal pre-tax EBIT plans (around $200mm) by a factor of 2, Friedman could take home a total of $4.375mm this year ($1.25mm base + $3.125mm in incentives). At face value, that seems like a pretty cheap deal for shareholders, and it is. 

 

But it also outlines what happens when a CEO is compensated in stock in the early years. Freidman owns a 6% stake in RH, currently worth $212mm. At 2x the top of end of RH's current guidance, that would equate to $6.00 in earnings power. Apply a 30x multiple and we are talking an additional $200mm added to Friedman's net worth in 2015. $6.00 is more than a little bit ambitious for this year, but we like that the incentive is there.

 

If RH wins, then Friedman wins, and shareholders win.

 

Still our top name in all of Retail.

 

EVENTS TO WATCH

Retail Callouts (6/1): RL- New Idea Vetting Book, RH - 6 1 chart2

 

 

OTHER NEWS

 

DLTR, FDO - Dollar Tree, Inc. Reaches Agreement to Sell 330 Family Dollar Stores to Sycamore Partners Contingent on Completion of Family Dollar Merger

(http://www.dollartreeinfo.com/investors/global/releasedetail.cfm?ReleaseID=915546)

 

AMZN - Amazon Offers Limited Free Shipping on Same-Day Delivery Orders

(http://wwd.com/retail-news/direct-internet-catalogue/amazon-free-shipping-same-day-delivery-prime-10136617/)

 

W - Wayfair names new CTO

(http://www.retailingtoday.com/article/wayfair-names-new-cto)

 


Fund Flows | Defense Takes the Field

Takeaway: Investors moved defensively last week, making net withdrawals from all equity products and shoring up cash in money market funds.

This note was originally published May 28, 2015 at 07:13. For more information on Hedgeye's wide array of smart investment products click here.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Fund flows were defensive in the 5-day period ending May 20th with total net equity products in outflow. Investors instead moved to the sidelines with +$20.6 billion of cash being added to money market funds last week. There were some pockets of strength with international equity mandates experiencing their second largest inflow in 2015 of +$4.3 billion. However, this was not enough to balance out the -$5.4 billion withdrawal from domestic equity funds. Investors have now pulled -$38.6 billion from domestic equity funds so far in 2015 versus +$11.6 billion in contributions over the same period last year. 


Fund Flows | Defense Takes the Field - z cast 1

 

In the most recent 5-day period ending May 20th, total equity mutual funds put up net outflows of -$1.1 billion, trailing the year-to-date weekly average inflow of +$713 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund contributions of +$4.3 billion and domestic stock fund withdrawals of -$5.4 billion. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 10 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net inflows of +$2.0 billion, trailing the year-to-date weekly average inflow of +$2.3 billion but outpacing the 2014 average inflow of +$929 million. The inflow was composed of tax-free or municipal bond funds withdrawals of -$138 million and taxable bond funds contributions of +$2.1 billion.

 

Equity ETFs had net subscriptions of +$1.0 billion, trailing the year-to-date weekly average inflow of +$1.6 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net outflows of -$632 million, trailing the year-to-date weekly average inflow of +$1.2 billion and the 2014 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:

 

Fund Flows | Defense Takes the Field - ICI2

 

Fund Flows | Defense Takes the Field - ICI3

 

Fund Flows | Defense Takes the Field - ICI4

 

Fund Flows | Defense Takes the Field - ICI5

 

Fund Flows | Defense Takes the Field - ICI6

 

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

Fund Flows | Defense Takes the Field - ICI7

 

Fund Flows | Defense Takes the Field - ICI8

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the long treasury TLT ETF saw somewhat of a recovery after a string of withdrawals. Investors contributed +$253 million or +5% to the fund.

 

Fund Flows | Defense Takes the Field - ICI9

 

 

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$1.4 billion spread for the week (-$59 million of total equity outflow net of the +$1.4 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.4 billion (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$13.1 billion (negative numbers imply more positive money flow to bonds for the week.)

  

Fund Flows | Defense Takes the Field - ICI10

 

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

Fund Flows | Defense Takes the Field - ICI11 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

 

 

 

 


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