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Initial Claims | Winter Is Coming

Takeaway: Now more than ever, after recently hitting a 15-yr low, claims seem to have only one direction to go, but it may take some time.

This is an excerpt from a research note published earlier this morning. Click here for more information on how you can subscribe to Hedgeye's contrarian investing research products.

The labor market remains strong, but conditions are clearly late-cycle for the broader economy. We're now 14 months into a sub-330k initial claims environment with the prospects of Fed tightening seemingly growing, and, ultimately, catalyzing the reversal of the expansion. Looking back at the last 3 cycles, claims stayed at a sub-330k level for an average of 33 months. Specifically, the last 3 cycles were 24 months (1990), 45 months (2001), 31 months (2008).


Initial Claims | Winter Is Coming - Claims3


Initial Claims | Winter Is Coming - Claims18


The Data:

Prior to revision, initial jobless claims rose 3k to 279k from 276k WoW, as the prior week's number was revised up by 1k to 277k.


The headline (unrevised) number shows claims were higher by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3.75k WoW to 278.75k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -12.1% lower YoY, which is a sequential improvement versus the previous week's YoY change of -11.6%


Initial Claims | Winter Is Coming - Claims2


Initial Claims | Winter Is Coming - Claims4


Initial Claims | Winter Is Coming - Claims5


Initial Claims | Winter Is Coming - Claims6


Joshua Steiner, CFA




Jonathan Casteleyn, CFA, CMT




Retail Callouts (6/11): UA, NKE, LULU, KSS Did What?

Takeaway: Contra to the press, NKE NBA deal is ROIC dilutive, and a positive for UA. KSS makes bad CMO decision. So long, farewell Chip/LULU.






Takeaway: Consider this...a week ago (before this 'official' announcement) if you were to ask 10 people in your Office, Gym, Neighborhood (or whatever) who endorsed the NBA, I bet that no fewer than seven would have said Nike. Yet, it was Adidas. A few considerations…

  1. League endorsements largely do not work. Consumers don't care about the logo players are required to put on their shirts. They care about the logo they proudly wear on their feet. That's why Nike walked away from these League deals over a decade ago.
  2. Adidas paid $400mm over 11 years. Nike is paying $1bn over 8-years. While this is still less than the $1.1bn/5-yrs that Nike is paying for the NFL, it is a lot of coin to pay for the 5th most watched sport in the US (NFL, MLB, CFB, NASCAR, NBA, NHL) -- yes, NBA is just a notch above hockey.
  3. Here's where Nike can earn its keep. If they somehow figure out how to innovate the uniforms such that players notice a dramatic improvement in their ability to put points on the board and play over an extended period of time, then there's a commercial apparel opportunity for Nike. That's what it did with the NFL. But a football player's uniform weighs about 30lbs, and has not been innovated or streamlined in 30 years. That was a ripe opportunity for Nike.  Basketball is a very different story -- shorts, tank top, that's it.
  4. We're reading a lot this morning about how this is bad for UnderArmour.  Let's be clear about something...this HELPS UA. The fact that it is being boxed out of major endorsement deals by the 900lb gorilla in the space gives it all the ammo it needs to continue its reign as the anti-establishment brand for the young athlete.  Nike just gave UA a gift with this deal. And let's face it, UA has been crushing it lately with success in it's own endorsement deals, like Misty Copeland (big miss by Nike), Jordan Spieth, Tom Brady, Andy Murray, and Stephen Curry.


KSS - Chief Merchant Position Filled, New COO Search Underway

Takeaway: Kohl's ends external search for new Chief Merchant. Hires current Chief Customer Officer, Michele Gass.

With the entire global retail industry  as a talent pool to source this position, Mansell picked the person who said very explicitly at the Analyst Day in October that 'love' would drive the business -- not once, or twice, but 19 times.

Also, being a Chief Customer Officer (something that has no P&L responsibility or accountability) has nothing to do with being a Chief Merchant. This one will be hard for the bulls to defend.


LULU - Chip Away

Takeaway: A predictable move by The Chipper. Six months ago he made his intentions clear to move on by selling half his stock. That was more of a defensive move where he could not hold out for a better price. But the remaining half of his shares coming to market is a different story. This is Chip being opportunistic on price -- and (not to be confused with our opinion of him as a Leader) we agree with him every last step of the way. To own LULU here you have to think it's egregiously cheap (which it's not at 30x earnings and 18x EBITDA), or the company can execute on the next stage of its growth plan (if it actually has one) without a meaningful restructuring of the business. We don't believe either. Our bet is that neither does Chip. We don't see a catalyst on the short side, but we'd stay far clear of being Long this one. That's why we got out in March at $65. Since the Advent sale, Chip saw his remaining position appreciate by $700mm. Yes, he's been unhappy with the brand's trajectory for sometime, but he's still a capitalist.

As background on the Chip Soap Opera, as we call it, it's followed the playbook we laid out nearly 12 months ago to a T. We assigned the probability of either a strategic deal (30%) or Chip selling stock (35%) at 65%. And since that date we've seen both. First in August, Chip unloaded half his stake to Advent and agreed to a series of play nice provisions and today Wilson took the first step in unwinding the rest of his 22% position.

If the announcement had been made 6 months ago, we would have declared victory for the Board, but at this point Chip has been all but neutered and the Board has been making autonomous decisions since he resigned his seat in February. It could be that he wants to be more involved in his wife and son's relatively new Kit & Ace brand which he has been prohibited from working on due his non-compete clause.

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart1



Takeaway: Nice uptick in retail sales for the month of May.

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart2


MW - 1Q15

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart3


AMZN -  Slight comp improvement in May for AMZN in ChannelAdvisor #s

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart4





AMZN - EU opens investigation into Amazon's e-book business



MW - Men's Wearhouse Signs Agreement With Macy's To Operate 300 Macy's Tuxedo Shops And Online Rentals



URBN - Anthropologie to Expand Beauty, Accessories Offerings



JCP - Penney’s 2015 Plans: Accelerate Sales Gains, Improve Selling Floors



CROX - Crocs Inc. Appoints Carrie Teffner to Board of Directors



Takeaway: PENN will likely tee off on the bears with a strong Q2, upward 2015/2016 EPS revisions, and the start of a 2 yr growth period


PENN’s stock has climbed 27% this year on stabilizing regional gaming revenues, transaction-fueled optimism (real estate) surrounding the regional gaming companies and proximity to the opening of the new Plainridge racino on June 24. So what will drive even more upside? More and better. We think regional gaming trends are even better than anticipated by the Street and Q2 earnings should be a solid beat even before Plainridge contributes.


Plainridge could contribute win per slot in excess $400 per day, well north of Street expectations. As investors start to look out to 2016, they will consider PENN a growth company again with a full year of Plainridge and the opening of the Penn managed Jamul casino near San Diego in Q2/Q3 2016. Given the strong performance of the Indian casinos near San Diego, we believe Jamul may surpass investor expectations as well. 


Please see our detailed note: 




Early Look

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LEISURE LETTER (06/11/2015)



Neptune - denied that it is laying off 300 layoffs of workers by the end of this month.  They added: “Because of the large number of employees and the high turnover rate of employees, [we have had] 100 [or] 200 employees who resign or are let go each year for different reasons in the past few years. This year so far the number of employees who resign or are laid-off is similar to the level of the past few years, contradictory to the online rumors that 300 employees will be sacked by end of this month. The relevant media reports are unfounded.”


Takeaway: Attrition - the only way politically to reduce headcount


HOT - announced plans to debut in South Australia with the signing of Aloft Adelaide in the state capital. Owned by local developer, Sturt Land Pty Ltd, a joint venture between local construction group Tagara and Melbourne-based developer Colvid, the signing of Aloft Adelaide marks the Aloft brand’s third property to enter the Australian market.



MGM – CEO of MGM China operations, Grant Bowie commented on possible merger speculation with WYNN. “This report was mere speculation and frankly we don’t comment on speculation. I don’t think it does us any good to continue these discussions.”

Takeaway:  The idea of a merger sounded far fetched but Bowie didn't deny the possibility either. 


Bloomberry – CEO Razon, said he would be willing to invest in a new international airport in Manila to boost tourism in the country.




New Zealand – saw 10% cruise passenger growth in 2014. Considered the third fastest growing cruise passenger market next to Australia (20.4%), and France (13.6%).



China Industrial Output (May) - actual +6.1%; consensus +6.0%

China Retail Sales (May) – actual +10.1%; consensus +10.2%  


Hedgeye Macro Team remains negative on Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.

RTA Live: June 11, 2015

Here is the replay of today's edition of RTA Live.


Bunds, USD and Japan

Client Talking Points


But today isn’t about the Fed; it’s about this epic Global Yield move that continues to be perpetuated by daily ramps in the 10YR German Bund Yield (up +4 basis points today to 1.02%). This even has JGB 10YR Yield up +4 basis points on the day to 0.54% (but you won’t see a Japanese “rate hike” narrative like you’re seeing as consensus chases momentum in the U.S. on that).


There is nothing like a few solid down days for the U.S. Dollar ahead of the Fed meeting to get Oil to re-test the top-end of our current 58.81-61.98 risk range for WTI… then the USD bounces, and Oil pulls back a full 1% - this component of the correlation trade remains #on.


Instead of burying our heads in the bond yield sand, we did make the call to re-short the Yen (vs USD) yesterday inasmuch as we reiterated the call to buy Japanese equities at the low-end of our risk range. The Nikkei was up +1.5% overnight vs. something like India which was down -1.9%. There are plenty of long/short ideas out there in Global Macro to stay with.



**The Macro Show - CLICK HERE to watch a replay of today's show with guest analysis from Gaming, Lodging, and Leisure Sector Head Todd Jordan. Todd gave an update to his Macau outlook and discussed the risk profile given the current supply and demand imbalance.


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Penn National Gaming is a true growth story in regional gaming, finally, ripe with catalysts, same store and new unit growth, and accelerating cash flow.  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. 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.


The takeaway on Purchase Activity was mixed as demand declined -3.0% sequentially but accelerated from +13.1% to +13.9% on a year-over-year basis.  More broadly, and inclusive of the latest week, purchase demand in 2Q continues to reflect both sequential and year-over-year improvement with demand growth for the quarter currently tracking +13.6% QoQ and +12.8% YoY. No major callouts in the latest week as the larger trend towards ongoing improvement in purchase activity in 2Q remains intact. 

CLICK HERE to watch Housing Sector Head Josh Steiner gives a brief update on our call on ITB.


Considering we are already well passed an above average length expansion, and moving into the second half of 2015 growth and inflation comps (i.e. the base effects) become very difficult, growth is likely to continue to slow. We put the likelihood of a rate hike in 2015 as highly unlikely and continue to expect rates to move to make a series of lower-highs through the balance the year (bullish for EDV, TLT, and VNQ. When forward looking growth expectations are downwardly revised and the Fed kicks the can on rate hike expectations, rates and the dollar move lower. Gold has historically performed well in an environment of falling rates and a declining U.S. dollar and we don’t expect anything different this time around. Supporting our view, both gold (GLD) and treasuries (TLT, EDV) remain BULLISH on an intermediate-term TREND duration (3-months or more).   

Three for the Road


World Bank cuts US GDP from 3.2% to 2.7% (and they are still too high) @HedgeyeDDale



Leadership is the capacity to translate vision into reality.

Warren Bennis


The Royal Institution of Chartered Surveyors reported on Thursday that the stock of homes per surveyor has fallen 12% this year to 52 properties, the lowest since records began in 1978.