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Steiner: This Is The Single Biggest Risk Facing U.S. Stocks Over The Next Decade

 

During this brief excerpt from today's edition of The Macro Show, Hedgeye Financials Sector Head Josh Steiner goes deep into the weeds on the single biggest risk facing U.S. equities right now.


VIDEO | $YELP Best Idea SHORT Update

Hedgeye's Internet & Media Team hosted an update call to our SHORT Yelp (YELP) Best Idea. YELP's business model is unsustainable and is already breaking down. Further, a new major red flag has emerged, which we believe is what prompted YELP to shop itself. However, we don’t believe YELP will find a buyer.

    

We updated our bearish thesis and explained why we see an additional 35%+ downside from here.

 

KEY TOPICS INCLUDED  

  • Extreme Attrition Rate: Overwhelming majority of customers are churning off annually.
  • Insufficient TAM: YP.com is not the low-hanging fruit, it's a pipe dream.
  • New Major Red Flag: The story is going to turn much sooner, and get much uglier, than we initially expected
  • Is There a Buyer? Assessing the M&A landscape in terms of both ability and willingness of potential suitors

Retail Callouts (6/4): TGT, AMZN, KSS, UA, NKE

Takeaway: TGT says it will beat AMZN, easier said than done. The year of UA continues with Curry and Murray rolling.

TGT, AMZN, KSS - "Target Will Beat Amazon" Online

(http://abegarver.com/post/120664444495/target-coms-president-challenges-amazon)

 

Takeaway: Pretty bold statement by TGT's head of E-Comm. Granted he joined the company in 2013 and was elevated to his current position in December of 2014, so he isn't responsible for the company's historically bad track record online (see chart below). We'd actually be concerned if he wasn't talking up his team's digital prowess. The company set ambitious DTC goals at its analyst day back in March, calling for 5 years of 40% growth. But we think it’s a little too early for TGT to throw down the gauntlet with AMZN whose online revenues are 17x that of TGT. TGT has the physical brick and mortar assets and a beefed up online presence which should help curb showrooming, but it'll be incredibly difficult for TGT to undercut AMZN especially when the retailer has no margin to protect.

Lastly, TGT needs to prove that it can grow its online business without cannibalizing its brick and mortar sales. Look no further than KSS to see how difficult this actually is (the company has comped negative in its stores in every quarter but one from 2012-2014 as e-comm grew at a 28% CAGR). Plus, for TGT that channel comes in at a gross margin 650bps below the in-store average.

Retail Callouts (6/4): TGT, AMZN, KSS, UA, NKE - 6 4 chart1

 

 

UA, NKE - The Year of UA Continues

(http://www.bloomberg.com/news/articles/2015-06-03/under-armour-gets-shot-at-hoop-dreams-with-curry-in-nba-finals?cmpid=yhoo)

 

Takeaway: The year of UA continues with MVP Steph Curry leading his team to the NBA finals to take on NKE's poster boy King James. On the tennis court -- Andy Murray is in the semi-finals at the French Open (dressed head to toe in UA, but still wearing Adi kicks). Plus Tom Brady and Jordan Spieth had big wins at the Super Bowl and The Masters, respectively. UA has changed its endorsement tune a bit over the past few years going after more established talent, but that's been expensive for UA. Endorsements as a percent of sales have climbed ~400bps over the past 2yrs with the top line growing at an average of 30%. If there’s any real takeaway here it’s that as UA grows and succeeds in its own right, it is competing increasingly against the big boys (NKE, Adidas, Reebok, Puma) for marketable talent. It has a great advantage in that the brand is so hot, authentic and relevant. But those factors do not trump the economics associated with a higher ante-chip for sponsorship deals. We can see what’s coming on the cost side, now we just need the revenue to follow. It’ll probably come. But anyone looking for margins to go up might be in for a surprise.

 

 

OTHER NEWS

 

AMZN - Amazon offers free shipping for light items

(http://www.chainstoreage.com/article/amazon-offers-free-shipping-light-items)

 

WMT - Walmart renews commitment to associates, makes ‘significant’ change to name badges

(http://www.chainstoreage.com/article/walmart-renews-commitment-associates-makes-%E2%80%98significant%E2%80%99-change-name-badges)

 

Authentic Brands Group Signs Partnership Deal with Global Brands Group for Jones New York Brand

(http://wwd.com/business-news/financial/authentic-brands-jones-new-york-10140869/)

 

Zara USA Faces $40M Discrimination Lawsuit

(http://wwd.com/business-news/legal/zara-usa-discrimination-lawsuit-10140462/)

 

H&M to Open First Indian Store in New Delhi

(http://wwd.com/retail-news/specialty-stores/hm-to-open-first-indian-store-in-new-delhi-10140049/)

 

Neiman Marcus to be shoppable on Pinterest

(http://www.retailingtoday.com/article/neiman-marcus-be-shoppable-pinterest)

 

 


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MACAU CONF CALL: FRIDAY (JUNE 5) AT 1PM

Takeaway: Research Topic: Who has the most to lose in an increasingly imbalanced supply demand environment over the next two years?

We will host a conference call on Friday, June 5 at 1PM ET to discuss the latest Macau data, our outlook on the market and the stocks and the presentation of a new, original research topic.

 

 

RELEVANT TICKERS INCLUDE:

LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.

 

 

DISCUSSION POINTS

  • Details behind May GGR 
  • Discussion of base mass trends
  • The impact of Mass re-classifications
  • Revised 2015 monthly market projections
  • Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) 
  • Who has the most to lose in the increasingly imbalanced supply demand environment over the next two years? 

 

CALL DETAILS

Attendance on this call is limited. Ping  for more information.

 

 


Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at today's Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to subscribe.

Keith's Daily Trading Ranges [Unlocked] - Slide1

BULLISH TRENDS

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Keith's Daily Trading Ranges [Unlocked] - Slide5

Keith's Daily Trading Ranges [Unlocked] - Slide6

 

BEARISH TRENDS

Keith's Daily Trading Ranges [Unlocked] - Slide7

Keith's Daily Trading Ranges [Unlocked] - Slide8

Keith's Daily Trading Ranges [Unlocked] - Slide9

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Keith's Daily Trading Ranges [Unlocked] - Slide12


Epic 3-Day Move

Client Talking Points

EUROPE

We think ECB President Mario Draghi made his 1st big mistake yesterday in classifying economic growth the way he did (sequentially most European growth data has been slowing) and basically saying #deflation isn’t a risk anymore. The German DAX is down -1.5% this morning and down -3.1% in the last month.

YIELDS

German Yields have almost doubled (not a typo) in the last 3 days – that’s normal! Swiss Yields have gone from negative to positive +0.04% and all this matters if only because markets weren’t ready for it. Probably the best buying opportunity in long-term U.S. Treasuries in a year, especially if the jobs report is bad tomorrow (35-40 basis points of daily downside in the UST 10YR). 

CHINA

Blue Horseshoe “Golden Sun Securities” under siege as the sketchy-ness of it all ramps. The Shanghai Composite Index dropped 5% intraday, then experienced a straight up ramp into the close that put it +0.8% on the day = +144% in the last year.

Asset Allocation

CASH 46% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 12%
FIXED INCOME 28% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility. PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. Both properties should well exceed current Street estimates for win per slot and EBITDA. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.

ITB

Housing went 3 for 3 as the Trinity of Fundamental Data Points released in the latest week continued to reflect accelerating rates of improvement across both the New and Existing markets. New Home Sales in April rose +6.8% month-over-month to +517K.  More notably, sales were up a remarkable 26% on a year-over-year basis as NHS re-converged back to the trend in New Home construction. Pending Home Sales rose +3.4% sequentially in April, accelerating to +14% year-over-year with the Index making a new 101-month high.  Pending Home Sales represent signed contract activity and are a historically strong lead indicator of Existing Home Sales.  The MBA’s weekly Mortgage Purchase Application Index re-captured the 200-level, rising +1.2% week-over-week and accelerating +250bps sequentially to +13.1% year-over-year.  

TLT

We believe the U.S. economy is past peak in rate-of-change terms and sliding down the slope to an eventual cliff (i.e. recession). That’s our call and we’re sticking to it. Friday’s negative revision takes our full-year estimate for real GDP growth down to +2% (from +2.3% prior). Both the Fed and Street are up at +2.5%, both of which continue to careen down from perpetual expectations of rainbows-and-puppy dogs (i.e. 3-plus percent growth) earlier this year. We reiterate our call to be long of long-duration in its many forms:  TLT, VNQ, EDV, and GLD (gold has historically performed well in down-dollar and down-interest rate environments and we think the June 17th FOMC statement has a high probability of being dovish and dollar-bearish).

Three for the Road

TWEET OF THE DAY

We've got an Idea Vetting Book on $RL coming down the pike on Mon to drill down the battleground issues.

@HedgeyeRetail


QUOTE OF THE DAY

The empires of the future are empires of the mind.

Winston Churchill

STAT OF THE DAY

MBA Purchase Activity was mixed as demand declined -3.0% sequentially but accelerated from +13.1% to +13.9% on a year-over-year basis.  

 

The Macro Show - CLICK HERE to watch today's edition at 8:30am ET.


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