Vacation Time?

(Editor's Note: The introduction to this morning's Early Look was written by Hedgeye President Michael Blum.)


“Vacation will kill you”

– Elon Musk


Ronald Reagan famously took the other side of this argument by proclaiming:


“It's true hard work never killed anybody, but I figure, why take the chance?”


Musk managed to build his own space program while at the same time challenging Detroit with an electric car. Reagan defeated Communism. You decide which of these two philosophies is better suited for success.


As avid readers of the Early Look will know, I had the once in a lifetime opportunity in January of 2014 to take on the challenge of building a second company alongside my role as President of Hedgeye. I became a Co-Founder and the CFO at Firefly Space Systems. In the 20 months since, I have worked harder than I ever have in my life.


One of the amazing cultural parallels between a Wall Street 2.0 research firm and a small satellite rocket business are leaders not afraid to unleash young, extremely talented employees with fire in their bellies. Keith and our leadership team here at Hedgeye have a long tradition of finding the brightest and most hungry recent graduates and providing them a platform to demonstrate their abilities. In sales, research or on the software engineering team, no one is limited in their opportunity to showcase their very best, demonstrate leadership and build their own business.


At Firefly, our CEO Dr. Tom Markusic employs the same philosophy. So long as we have a tier of seasoned engineering management to mentor and teach, our aerospace engineering grads from places like MIT , Princeton or UT Austin have the opportunity to take on responsibilities their peers at big aerospace companies can only dream of. The result is one of the most dynamic engineering organizations one can imagine.


Vacation? It’s a mere two weeks until Labor Day. I think I can wait a few days.


Back to the Global Macro Grind...


The introduction above  from Hedgeye President Michael Blum is spot on.  This is no time for a vacation! As it relates to the global markets, if you were out on vacation over the last week, you also would’ve missed the following:


Vacation Time? - Oil cartoon 12.09.2014


  1. Continued Oil Price Decline – Both WTI and Brent are down more than -50% over the last year.  More interestingly, WTI is set to have its 8th consecutive week of declines, which is the first time this has happened since 1986, or 29 years. Oil stockpiles continue to build globally, and the next major negative catalyst is likely to be a spike in U.S. inventories as U.S. refiners follow the typical season pattern and cut utilization from August to March. But don’t worry Fed Vice Chairman Fisher thinks low inflation is “temporary” . . .
  2. Continued Chinese Growth Data, Or Lack Thereof – Don’t worry, it’s only “temporary,” so if you were on vacation this week and missed it, that’s fine.  But the August Caixin Flash manufacturing PMI number from China came in at 47.1 for August.  This is lower than expectations of 48.2 and a sequential decline from July’s reading of 47.8.   In addition (not to pile on of course) this was the lowest reading since March 2009 and all of the key sub-indexes decreased at a faster pace than in July.
  3. Greek Prime Minister Going On Permanent Vacation - In a move that likely surprised nobody, Greek PM Tsipras resigned yesterday.   It seems to be an attempt to potentially consolidate his power, but as a leader in a time of economic turmoil, we aren’t sure we would advocate resignation.   Nonetheless, the Greek Drama, aka Gong Show, continues.
  4. Global Equities Deflating – It's been a rough week for global equities to say the least.  Of the major markets in Europe, Germany led the decline, down -6% for the week. The DAX is now down -11% for the month.   This morning Asia is getting pancaked across the board. Korea is down -3%, Japan -3%, and China -4%.   The Asian move this morning is likely keying off the decline in U.S. equities from yesterday. Although down a mere -3.2% for the month, the S&P 500 continues to be a relative out performer.  (Leading indicator for a better relative economy in the U.S. ?)
  5. Volatility Inflation – Earlier in the week, we re-tweeted a chart that highlighted that the Dow is in the tightest trading range this deep into the year (literally ever) with the range after 157 trading days at 6.44%.  (This includes data going back more than 100 years.)   It seems like that tweet likely signaled the bottom for equity volatility in the U.S. as the VIX is now currently up +49% on the week.
  6. Geopolitics Rearing Its Head – It wouldn’t be a fun vacation week of equity declines and negative growth data without some geopolitical tension thrown into the mix.  North Korean leader Kim Jong Un put his army on war footing.   The recent exchange of shells between North Korea and South Korea is the most significant exchange in about 5 years.  This is likely more than anything “rhetoric,” but nonetheless not an ideal time for negative geopolitical headlines.


So if the last week in the global macro landscape is telling us anything, vacation is officially over for the year!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.03-2.16%

SPX 2027-2079 
RUT 1165-1206 (bearish)

VIX 14.22-19.94 (bullish)
Oil (WTI) 40.07-42.54 (bearish)


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Vacation Time? - Z CHART OF DAY 08.21.15 chart


We are adding United Natural Foods Inc. (UNFI) to the Hedgeye Consumer Staples LONG bench. We intend to do a deep dive into this company over the next month, to get to the bottom of where we stand on it.




This stock has been beaten down way too far, due to an overreaction from the fallout of one big customer, Albertsons. The stock is down 42% from its 52-week high and down 24% over the last year.




Given the strong guidance for 4Q15 and the upbeat guidance heading into FY16 we are confident in the ability of this company to succeed. The thought that UNFI will continue to lose customers from competition is overblown and not very realistic in our minds. UNFI provides a high level service, offering a wide variety of over 80,000 products at industry leading prices. The industry is seeing continued growth in natural & organic, specialty, ethnic gourmet and fresh, all of which UNFI offers and can package together to provide retailers great value. Management is hinting towards positive results in the first two weeks of FY16, although only two weeks, it’s nice to hear of a marked sequential improvement.


UNFI has gone through a period of investment in capacity over the last couple of year. They are now past this, therefore capex with be falling down to more modest levels, about 0.6% - 0.7% of net sales. Free cash flow is going to start to ramp up as they invest less and leverage their assets more; this will lead to the possibility of doing bigger acquisitions.


Their main competitor, KeHe, recently was selected as UNFI’s replacement as the primary natural & organic distributor to serve Albertsons. It is our belief that KeHe is going to be busy integrating this business, therefore unable to go after any large contracts in the near future.



On August 19, 2015, UNFI released preliminary 4Q15 and FY15 results as well as FY16 guidance (September 14th is the formal announce date). The company anticipates net sales in the range of $2.060 billion to $2.065 billion, versus consensus estimates of $2.051 billion. UNFI's diluted EPS for the fourth quarter of 2015 will be in the range of $0.72 to $0.73, which will match or exceed consensus estimates of $0.72.


Management also provided their FY16 outlook; the company expects net sales in the range of $8.51 billion to $8.67 billion, which represents an increase of 4% to 6% over FY15. Currently, consensus estimates for FY16 net sales are $8.596, so management is hinting at something slightly above that.


From listening to the pre-announcement conference call we get the feeling that they are leaving some in their pocket for a rainy day.  There is a strong possibility of gaining new customers in the coming year, as well as acquiring a business or two as they hinted at in the call.



In early research, taking a conservative approach to multiple and EBITDA growth we are getting to a bull case of about $70/share or ~46% upside from here.




A lot more research to go through, but we are confident that the stock has bottomed, and has all negativity built in.


We will share pivotal information with you as we dig in here. Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw





August 21, 2015

August 21, 2015 - Screen Shot 2015 08 21 at 8.52.37 AM

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Do You Own The Hillary Clinton Portfolio?


In this brief excerpt from a special, extended edition of RTA Live, Hedgeye CEO Keith McCullough takes a humorous look at Hillary Clinton and three stocks getting smoked.


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The Macro Show Replay | August 21, 2015


Cartoon of the Day: FX Wars!

Cartoon of the Day: FX Wars! - Currency war. deflation cartoon 08.20.2015


Hedgeye CEO Keith McCullough in today's Early Look:


...But what happens then the US economic cycle slows into a stiffening demographic (secular) headwind? What happens when all of the world’s growth and inflation expectations start to slow, at the same time?


If you didn’t know the answers to these questions, now you’re starting to know. It ends how it all started. It ends in the capitulation of the Currency War. This is it. This is the war that nobody, other than we Wall Street types, will come to fight for.