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Aggressive Enough?

“I wasn’t aggressive enough, and the match turned completely.”

-Justine Henin


That’s how Belgian tennis great, Justine Henin, explained losing in the 2006 Wimbledon final to France’s Amelie Mauresmo. This came after Henin won the 1st set 6-2 hitting “twice as many winners as unforced errors.” (Top Dog, pg 131)


Henin has never won at Wimbledon, but she’s won 7 Grand Slam titles. She won the Olympic Gold medal in 2004 too. At the highest level of competition, she gets #winning and what happens when you don’t play to win.  That’s where the best players beat themselves.


Aggressive Enough? - Justine


While I wouldn’t characterize last night’s competitors in the #GOPDebate as the best leaders in the world, however mediocre the bar for American politics has become, you could clearly see who was playing to win (Fiorina) vs. who was playing not to lose (Bush).


Back to the Global Macro Grind


Since I support neither the Republican nor Democrat party (because, much like during the Nixon/Carter decade, under Bush/Obama both parties have had the same currency, debt, and monetary policies), I guess I’m not your US political party fan boy.


Political partisans can consider me whatever they’d like as a result of that. In case you haven’t noticed, I don’t particularly care what people think about me. On free-markets and economic matters, I’m happy to continue to think for myself.


On that front, I haven’t heard much of anything that is in the area code of aggressive enough from either party’s candidates, yet. Yeah, Trump is Mr. Big Time – great for him, personally. But he’s a protectionist – and that defensive posture is never going to win, globally.


Moving along…


Even though it’s an un-elected body of bureaucrats (that no one in the debate addressed last night), after being wrong 65-75% of the time, one office of the US Federal Reserve has evolved their forecasting process in the last few years.


The Atlanta Fed uses a “GDP Now” tracker (i.e. they update their model in real-time as opposed to plugging in an outcome they’d like to see and retrofitting the model to those 3-4% GDP assumptions). And it’s been better than bad, directionally, as of late.


We have a tracker too (short-form for predictive tracking algorithm) and the Atlanta Fed now has one of the few widely followed forecasts that is tracking in the area code of ours:


  1. Hedgeye Risk Management Q3 GDP +1.4% q/q SAAR, +1.6% y/y
  2. Atlanta Fed Q3 GDP +1.0% q/q SAAR (no y/y forecast)


“No y/y” means that they don’t model either growth or inflation like we do (on a year-over-year basis). The most bullish estimates I’ve seen on Q3 GDP come from the likes of Nancy Lazar at Cornerstone Macro. She just cut her forecast to 3.5% (from 4.0%) q/q SAAR.


Never mind being aggressive enough (i.e. changing your forecasts as the readily available data does), America deserves a President who understands why Washington’s “blue chip” economic forecasting and risk management hasn’t evolved, at all.  


If consensus economists aren’t forced to debate the most accurate pros on the most important rates of change, we’re really not having a free-market debate about anything tangible anyway.


This morning we’re going to get latest #LateCycle slowing update on the US jobs market. Here’s what I’m set up for ahead of that:


  1. Slower-for-Longer (so I’m long Long-term bonds and stocks that look like bonds = TLT, XLU)
  2. US Dollar immediate-term TRADE overbought within a developing bullish TREND
  3. Oil, Gold, etc. immediate-term TRADE oversold within nasty #deflation TAIL risks


In other words, another rate-of-change slowing in the US labor cycle (which we’ve already seen this week from both the ADP and Challenger Jobs Cuts reports), would be short-term bearish for the USD and reflate some of the deflations.


But where does that put the US economy? It’s still in a #LateCycle slowdown (if your perma bull strategist doesn’t get that, show them the negative returns you have being levered long cyclicals, including media stocks who have this thing called the advertising cycle).


And it still has me asking when 1 of the 17 people from last night’s grand-stage of political life is going to get aggressive enough on a #StrongDollar policy that would require us all to accept more asset deflation in the short-term, for long-term All-American gain.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.15-2.29%

SPX 2068-2098
USD 96.50-98.44
Oil (WTI) 43.89-46.77

Gold 1080-1098


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Aggressive Enough? - NFP Jul

USD, Oil and UST 10YR

Client Talking Points


On anything less than a 230,000 NFP we’d expect the Dollar Down, Rates Down and for Oil and Gold to go Up – that happened yesterday and it’s seeing some follow through this morning – stay tuned.


+0.7% WTI here after making a higher-low (vs. the March low) and don’t forget that the March bottom in oil came alongside the 1st big U.S. Jobs Report “miss” (March) vs. peak cycle expectations (labor peaked in FEB) – it’s not all about this, but this matters.


2.23% this morning with immediate-term downside to 2.15% and intermediate-term downside to 1.77% - the Atlanta Fed tracker is one of the few GDP estimates close to ours for Q3 at 1.0% GDP (we’re at 1.4% quarter-over-quarter SAAR, +1.6% year-over-year).


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET with Hedgeye CEO Keith McCullough.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

HOLX’s earnings release were as good as we expected, and in some spots, much better than our optimistic view. Given the move in the price, we did begin to do some work on Hologic’s Diagnostic segment. We touched base with a lab Director who currently does his testing on Hologic/Gen-Probe’s Panther system. During the call management made some positive comments about uptake of the systems and rising utilization per box. Our contact suggested the benefit from the Affordable Care Act was substantial  over the last 12 months, pushing volume up to a mid-teens growth rate, but that trends were flattening. But on the positive side Qiagen continues to cede share with an out of date test and the alternatives are primarily Roche and Hologic, but not Cepheid’s system. The bottom line is that we may be too conservative with our estimates for Diagnostics, which we’ve been assuming treads water from here.  However, we’re starting to think there is some incremental acceleration that’s possible, which would be welcome news indeed.  


After attending PENN’s analyst day at the Plainridge Casino in Massachusetts our Gaming, Lodging & Leisure Team struggled to find any negative takeaways. The property opened very strong in late June, and the strength continued in July. We are now raising our win per day per slot assumption to $500 from $400. Terrific highway access, a lower gaming tax rate and garage parking provide a competitive advantage in what seems to be a deeper market than the consensus view. Our 2015 and 2016 estimates are materially above the Street for EBITDA and EPS. Most importantly, we think PENN should generate an ROI of 28% on Plainridge, much higher than the Street anticipates.


As largely expected a sequential acceleration in GDP from Q1 to Q2 on a seasonally adjusted annual basis pulled forward the market’s expectation for a rate hike which = USD strength. The USD finished positive on the week (+0.50% on Thursday’s print alone).

  • U.S. GDP reported Thursday for Q2 came in at +2.3% on a Q/Q seasonally-adjusted annual rate and the market took it as a positive print à rate hike expectations pulled forward.
  •  Remember that 1) Consensus focuses on this SAAR number and 2) The GDP acceleration came off of an awful Q1 print (Q1 revised to a measly +0.60% for Q1 vs. initially reported -0.20%)
  • On a Y/Y basis (crazy Hedgeye speak) GDP for Q2 actually decelerated to +2.3% YY vs. 2.9% prior
  • With very difficult base effects in our model for 2H 2015 GDP we expect Q2 data (especially the GDP print) to provide support for the USD
  • Our expectation for Y/Y GDP in Q3/Q4 are +1.6% Y/Y (+1.4% Q/Q SAAR) and +1.5% Y/Y (+1.7% Q/Q SAAR) respectively; These prints (Q3 will come in October) will stoke a relatively more dovish FED for a short time (USD headwind) but until then we’ll ride the Q2 data train.   


Three for the Road


Coo Coo https://youtu.be/kJN9L3rRW40  via @YouTube



Life is like a combination lock; your job is to find the right numbers, in the right order, so you can have anything you want.

Brian Tracy


North Korea is creating its own timezone by dropping clocks back 30 minutes in what will be called “Pyongyang time,” effective August 15.

The Macro Show Replay | August 7, 2015


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

August 7, 2015

August 7, 2015 - Slide1


Takeaway: If this Space is broken, KATE missed the memo. The 2Q scoreboard is severely lopsided – especially vs market carnage. KATE at $20 is a gift.

This Pseudo-Luxury Handbag space has become the poster child for a group that takes a piece of information, ignores any and all context, and then takes it all out on KATE spade – the only name that has yet to show any stress.  Let’s keep this simple, and look at the scoreboard.

  1. Comp Store Sales: KATE wins at +10%, vs KORS at -10%, and COH at -19%. This is a 20% spread between KATE and the next closest, KORS. Interestingly, KATE’s e-commerce sales were flat, and yet total comps accelerated, suggesting that store comps went from +6 to +12%. Not too many retailers are printing such trends.
  2. Store Count: This one goes to KORS, with 24% store growth. This is grossly weighted to growth outside the US, which is where it belongs. KATE put up a big perceived slowdown – but that’s optical. Keep in mind that when Jack Spade/Saturday closed down store ops we saw 30 stores exit the fleet early this year. The adjusted store growth for KATE is about 15%.
  3. Revenue: COH put up its 8th consecutive quarter of revenue decline, and that’s including its Weitzman acquisition. KORS was fairly balanced at +7%, with KATE at a lowly 3%. But again, when you adjust the KATE numbers for store closures, 2Q growth was 18%. Winner = KATE.
  4. Margins: Finally, and most importantly, check out the margin trend. For the past seven quarters, both KORS and COH have put up a sequentially eroding trend in margins. Over the exact same time period, KATE marched in the exact opposite direction. All of that said, KATE’s TTM margin stands at 8.1% a shadow of KORS’ 27.7% and COH’s 18.8% (and a quarter of each of those brands’ peak).

HANDBAGS | ‘SPACE’ ODDITY - kate 8 7 chart1D


Ok…have we established that KATE is charging forward while the ‘space’ is weakening?

That’s why we don’t understand the disconnect between KATE. From the date each company started its respective downward spiral we can measure the following…

  1. COH: Lost $7.5bn in market cap, or 46%. Since that time, revenue was revised down $1.3bn, or 20%. A 46% drop in the stock in exchange for a 20% revenue revision? Makes sense to us.
  2. KORS: Lost $12.2bn in cap, or 61% in value. Over that time, we saw a 6% downward revision to revenue, or about $200mm. While COH’s decline is completely justified, it seems excessive with KORS. It suggests to us that the stock was either way overbought in the first place, or perhaps the revenue bottom is yet to come. We think it’s the former.
  3. KATE: Here’s where the math/logic breaks down something fierce. Since KATE has traded down in sympathy with ‘The Space’, we’ve seen revenue revised HIGHER by 9%. Again, revenue trended ABOVE expectations despite the closure of Saturday and Jack. And the stock experienced the same downside from peak to trough as Coach (which saw a -$1.3bn revision to revenue)? We could understand – maybe – if KATE was sitting at a 30% margin. It’s not. We still think that we’re likely to see earnings double next year to $1.20, and by the end of next year people will be talking about $3 in EPS power. With the stock at $20 today, it’s as much of a gift as we can find in this market.

HANDBAGS | ‘SPACE’ ODDITY - kate 8 7 chart2







-As it relates to the marketplace, the fact is that we are really not seeing any change in consumer behavior and there is certainly lots of noise around that. But in our view and the conversations that we continue to have with our retail partners, we are really seeing no change in consumer behavior. I think what we are seeing is some reshuffling of brand penetrations in the space that may be creating some noise but we are very confident in what is happening in the marketplace and I think our continued growth reflects that.


-If you take our retail sales in our own stores and our department stores, we had high single digit growth in North America.

-We believe that we are in fact growing market share in North America.

-We grew at a higher rate than we believe that the category did.

-We believe that the category in North America is growing in the low single-digit rate today, and we think that we are outpacing that growth by a fairly significant amount, again, showing the health of our brand.


-During the fourth quarter and specifically in the month of June, by our estimation, we did see a further moderation in category growth from the March quarter’s mid-single-digit rate.

-Growth was primarily impacted by a slowdown among some top players.

-The category had a slowdown from the previous quarter, mid-single to low single digits for the quarter.

-Overall for the year, we estimate that growth in the North American premium women’s market. Excluding moderate brands with an average handbag price point below $100, grew at a mid-single-digit rates, approaching $12 billion, as bags and accessories continue to represent a growing portion of her wardrobing spend.




-UK full price business continues to deliver strong comps and our e-commerce business is growing rapidly.

-As we continue to hone our European strategic growth plans, we expect continued expansion in France and will be launching a new wholesale business in Scandinavia and Benelux with new distribution partners later this fall and expect to have approximately 30 points of distribution by the fourth quarter.

-Japan department store penetration of PRC tourist in key cities accounted for 40% to 45% of total department store traffic while we are seeing single-digit penetration in our stores.

-Japan comps for the quarter were low single digits on a constant currency due in part to upward adjustments in our MSRPs in response to FX impacts, a partial shift in the promotional calendar from Q2 to Q3, and macroeconomic conditions.

-In Japan and Europe, our Kate Spade New York retail fleet sales productivity decreased 4% on a constant currency basis compared to second quarter last year for the same reasons that Craig referenced earlier regarding Japan and we expect this to improve by year end.


-In constant currency, we saw revenue growth of approximately 2% in North America, 42% in Europe, and 57% in Japan.

-We saw continued momentum in our international markets, with mid-single-digit comp growth in Europe and strong double-digit increase in Japan in constant currency.

-We are pleased with the strength in China and Southeast Asia, with double-digit comp growth in the first quarter

-The comps in Europe I think are going to be…on a constant currency basis, somewhere to the high single to mid-single digits.


-Coach brand total international sales up 3%

-In addition, our international businesses posted moderate growth on a constant currency basis, highlighted by a double-digit increase in Europe and strong growth in China, 

-Sales growth in China was driven entirely by the mainland, as Hong Kong and Macau continued to experience traffic declines from a decrease in PRC tourists.

-Moving to China. Our fourth-quarter sales rose 5%, with strong growth on the mainland more than offsetting weak results in Hong Kong and Macau.

-For the fourth quarter, sales in Japan rose 2% in constant yen, as we anniversaried the tax increase in saw increased tourist flows from the mainland Chinese, while sales in dollars declined 15%




-Our total North America segment net sales grew 22% increase in Q2.

-In wholesale, our business was primarily driven by strong performance in handbags.

-Data showing a continuing increase in market share representing a key opportunity for growth as we build on our still modest penetration of market share.


 -Growing share in a category that is still growing low-single-digits.


-On a constant currency basis, Coach brand revenues in North America down 19%

-We are projecting a low single-digit aggregate comp decline in North America


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