The #1 Thing In My Macro Notebook Today (No, It's Not Greece)

Editor's Note: This is an excerpt from Hedgeye morning research. Click here for more info.

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The #1 Thing In My Macro Notebook Today (No, It's Not Greece) - z china 06.30.15 chart


Some sneaky central planning dudes in Beijing stole the Greek headlines overnight by floating some rumor action (National Pension Fund buying!) out there. Yep. That’ll get your attention in an illiquid market. This fueled the biggest intraday move in the Shanghai Composite Casino since 1992!


Shanghai closed up +5.5% after being down 14% in the three prior days. Ex-Thailand (down -0.9%) Asian Equities were pretty much green across the board.


If you’re trading China and you don’t have your seat-belt on, please fasten it.


Also, in case you were wondering, the Chinese are doing this because the economic data there continues to be a disappointment.


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RTA Live: June 30, 2015



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Retail Callouts (6/30): Solid Chain Store Sales Number, BONT Sale Leaseback

Takeaway: Chain Store Sales Put Up a Big Number, Need to See More as Comps Remain Difficult | BONT sale leaseback = defense, not offense.

Chain Store Sales Put Up a Big Number, Need to See More as Comps Remain Difficult

Takeaway: After a noticeable sequential slowdown in the 1-yr trend line last week, we saw a meaningful acceleration against tough comps from 2014 translating to the best 2yr comp reading we've seen reported in 2015. We'll need to see more of the same as comps remain difficult across retail until we get through September and BTS.

Retail Callouts (6/30): Solid Chain Store Sales Number, BONT Sale Leaseback - 6 30 chart1

Retail Callouts (6/30): Solid Chain Store Sales Number, BONT Sale Leaseback - 6 30 chart2


BONT - The Bon-Ton Stores, Inc. Announces Sale-Leaseback Agreement



Takeaway: This isn't an offensive move by BONT, and the market said as much yesterday. The deal covers 20% of BONT's 30 owned properties and the deal terms aren't overly attractive. Plus, we think it's hard to justify paying ~$15 per square foot for department store pads in markets like Milwaukee, Green Bay, and Joliet. These stores are some of the company's most attractive doors with sales per square foot 170% to 350% above the fleet average. So, why didn't BONT monetize more doors -- if these are the terms WP Carey was willing to pay, it's entirely possible that the company didn't want more of what BONT was offering.





KSS - Kohl’s Corporation Announces $600,000,000 Cash Tender Offer for Certain Notes



TUES - Tuesday Morning Corporation Announces CFO Departure



PIR - Pier 1 Imports Appoints Retail Industry Veteran Jeffrey N. Boyer Executive Vice President and Chief Financial Officer



TGT, RAD - Ex-Target exec to lead store ops for Rite Aid



Authentic Brands Group Acquires Tretorn



Kering - Potential Suitors Emerge for Sergio Rossi



Barneys to Open Men’s Store in San Francisco



Gong Show

Client Talking Points


Sneaky central planning dudes stole the Greek headlines overnight, throwing some rumor action (National Pension Fund buying!) out there, delivering the biggest intraday move in the Shanghai Composite since 1992! (closing up +5.5%); ex-Thailand (down -0.9%) Asian Equities were pretty much green across the board. 


Yes/No, risk On/Off – this is a certified political gong show at this point, but in the midst of it the Europeans still have to report slowing economic data. German Retail Sales went negative -0.4% year-over-year (Greek Retail Sales -1.9% year-over-year), Italian unemployment still sucks at 12.4%, and most PPIs were still year-over-year deflationary.

S&P 500

That wasn’t a typo – that was the 1st > 2% down day of 2015 (SPX has only had 5 of those in the last 2 years!), but there were 20 greater than 2% down days in the 6 months (JUN-DEC) of the last “European Crisis” (which incidentally was the last big 2H U.S. economic data slowdown “surprise”; VIX in the high-teens very different than VIX 11-12).


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET with housing commentary from Housing & Macro Analyst Christian Drake.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We came out of the most recent earnings report being very positive about management doing all the little things right. They continue to prove that they are some of the best operators in the industry. In a quarter where ZOES opened 12 new company-owned restaurants they managed to decrease both COGS and labor. We view ZOES as one of the best small cap growth names.  The company is set-up for long-term success for the following reasons:

  1. Superior brand positioning
  2. Management philosophy and execution
  3. Unit opening geographic profile
  4. Early-stage average unit volumes and returns

PENN’s new property, Plainridge Park in Massachusetts, had a strong opening. We expect slot win per day of $400, above Street expectations. In addition, June state gaming revenues will begin to roll out in 1-2 weeks. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.


After a Fed-fueled week of strength in slow-growth, yield-chasing asset classes and long duration fixed income, both the Dollar and interest rates re-couped their losses from Fed Week. The dollar declined, rates increased, and as a result, those long of gold took some pain. Will this continue? Will a long, sustained rate liftoff ensue? We don’t think so. We continue to repeat that the chance of further downward revisions to forward looking growth estimates from the Federal Reserve and consensus macro is much more likely than not. The attempted suspension of economic gravity from policy makers weakens the currency and puts pressure on bond yields. We remain long of this set-up with gold and long-duration fixed income.

Three for the Road


PODCAST (5mins) Lacalle: This Time Is Different In Greece … via @hedgeye @dlacalle



The horse is here today, but the automobile is only a novelty - a fad.

President of Michigan Savings Bank advising against investing in the Ford Motor Company


53% of New York City’s 27,469 Airbnb listings are rented out for more than 60 nights per year, and 30% of them are managed by hosts who have more than one Airbnb listing to their name.

CHART OF THE DAY: Strap Your Seatbelts On | $VIX

Editor's Note: This is a brief excerpt and chart from today's morning strategy note written by Hedgeye CEO Keith McCullough. Click here to learn more about how you can subscribe.  


CHART OF THE DAY: Strap Your Seatbelts On | $VIX - zz 06.30.15 chart


...If you thought US stock market volatility and/or 2% down days were going away, you probably weren’t setup for an alpha generating day yesterday. To put that -2.1% drop in the SP500 in context:


    1. It was the 1st > 2% down day since October 9th, 2014
    2. There have only been 5 down days of > 2% in the last 2 years
    3. There were 20 > 2% down days in the JUN-DEC period of 2011



Unmoored Power

“Power may have become remarkably unmoored from size and scale.”

-Moises Naim


May have? Never have so few been able to roil so many in Global Macro markets. As Naim goes on to write in an excellent chapter titled “How Power Lost Its Edge”:


“Insurgents, fringe political parties, innovative startups, hackers, upstart citizen media, leaderless young people, and charismatic individuals who seem to “come from nowhere” are shaking up the old order… each is contributing to the decay of power of navies, television networks, traditional political parties, and large banks…” (The End of Power, pg 51)


Sound familiar? This is what I’d call a secular Phase Transition in a mega-factor in markets today. It’s #behavioral. It’s transcending. And, no, it’s not going away.


Unmoored Power - zzz5555



Back to the Global Macro Grind


If you thought US stock market volatility and/or 2% down days were going away, you probably weren’t setup for an alpha generating day yesterday. To put that -2.1% drop in the SP500 in context:


  1. It was the 1st > 2% down day since October 9th, 2014
  2. There have only been 5 down days of > 2% in the last 2 years
  3. There were 20 > 2% down days in the JUN-DEC period of 2011


What happened in both October 2014 and 2H 2011? Global Growth #Slowed, and Treasury Bonds rocked. Yesterday was also the biggest one-day drop in the 10yr UST Yield since October. Fed Fund Futures saw probability drop on a SEP rate hike too.


Can you imagine the US Federal Reserve raising rates into both a #LateCycle slow-down and European Gong Show Part Deux? Don’t forget that the last time Europe was in “crisis” was 2H of 2011. Oh, the memories.


This thing called an ongoing Phase Transition in cross-asset-class-volatility was up just a tad yesterday. Front-month VIX was +34.4% on the day to close at its highest level since US equities were “down YTD” in JAN-FEB.


Which leads me to a very basic risk management question:


If central-planning powers over markets are being unmoored by economic gravity (China, Europe, USA – all slowing at the same time), why wouldn’t the cross-asset-class-breakout-in-volatility you’ve witnessed since July of last year continue?


To review the #history of it all:


  1. US Equity Volatility (VIX) on July 2nd, 2014 bottomed at 10.82
  2. US Equity Volatility proceeded to rocket +142% to 26.25 by October 15th, 2014
  3. Then VIX closed right at 12.11 (at long-term-higher-lows) on May 21st and June 23rd of 2015


All the while, West Texas Crude Oil crashed (-44.4% since the all-time low in cross-asset-class-volatility in July of 2014 when we made our big Macro Theme call called #VolatilityAsymmetry) and multiple rounds of global “easings” were required.


Oh, and you’ve had the fastest 6 months of M&A (+60% year-over-year) since 1980…


But don’t tell anyone who does pro-cyclical macro about the 1981 recession and/or that buybacks, M&A, etc. are an implied signal that corporate profits (and margins) are slowing. Got to manufacture some EPS , eh!


In other news that probably won’t be reported by the mainstream financial media today – whatever was left of the base-effect bounce in European growth continued to slow this morning:


  1. German Retail Sales slowed from +1.0% to -0.4% (year-over-year)
  2. Greek Retail Sales and Producer Prices still suck at -1.9% y/y and -4.6% y/y, respectively
  3. Italian unemployment is still stuck at 12.4% while its PPI deflated -1.9% y/y alongside a 0.1% CPI
  4. Austrian and French PPIs (Producer prices) saw y/y #deflation of -0.9% and -0.5%, respectively
  5. Eurozone CPI stopped re-flating (from #deflation) at a whopping 0.2% JUN vs. 0.3% MAY


As a result, any objective “economist” should be cutting his/her European “growth” expectations in the 2H of 2015 inasmuch as they’ll ultimately have to cut their real-growth estimates for US and Chinese GDP in Q3 and Q4.


But #NoWorries, the Chinese pumped up the Shanghai Composite index +9% intraday today (biggest intraday move since 1992) by floating another rumor that the National Pension Fund will “buy stocks.”


Heck, when growth and earnings are slowing, someone needs to buy the damn things. God forbid they actually have another 2% down day here at home. The average M&A multiple in the aforementioned #bubble = 16x EBITDA.


In 2007 (i.e. the last US cycle peak) the peak M&A multiple was 14.3x. So we’ve certainly unmoored from that.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.19-2.48%

SPX 2048-2094
VIX 14.21-19.66
USD 93.84-96.16
EUR/USD 1.11-1.14
Oil (WTI) 57.67-61.29


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Unmoored Power - zz 06.30.15 chart

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