"It's not making mistakes in markets that kills you," Hedgeye CEO Keith McCullough wrote earlier today. "It's staying with them. Be very careful right now."
The catalyst for European equities? Simple. More cowbell. Not growth—cowbell.
You need to be very careful right now. A lot of the things that have been working for us (and could continue working like oil and gold) could go down considerably if Mario Draghi devalues the Euro tomorrow. The U.S. Dollar would go straight up on that.
As our European analyst Matt Hedrick pointed out in this morning’s Early Look:
…We continue to point out that European equities have been bombed out (the German DAX is down over -20% since April = crash), in-line with our 3Q15 Macro Theme of #EuropeSlowing. At the meeting, we wouldn’t be surprised to see Draghi 1) talk down the euro (in the near past, European equity markets have acted favorably to a weak EUR/USD – Germany in particular with 46.5% of the economy levered to exports – and 2) suggest more QE may be in the pipe (an increase in monthly purchases above the original target of €60B/month).
The volatility that is trending higher is most likely here to stay. Take a look around the world. Right now you have the Chinese, Japanese, Europe and the United States all in a mad race to the bottom. (Case in point: Check out what happened in Brazil on Friday.)
Make no mistake: This currency crisis is the epicenter of the central planning crisis.
600 some odd rate cuts… a failure to create the economic growth which they promised, etc, etc. It’s just going to be a continuing series of one panic after another.
That’s why we’re recommending you keep a lot of cash on hand. Tactically, when the opportunity presents itself, you’re going to be able to take that cash and buy stuff when it’s oversold. And short that stuff when it’s overbought.
This is how I am operating in the midst of this global mess.
My team here has been doing a damn good job navigating our subscribers through all of this I might add. And I’m not going to apologize for it.
In this excerpt from today's edition of The Macro Show, Hedgeye CEO Keith McCullough responds to a subscriber’s question wondering whether they should steer clear of the U.S. stock market.
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Takeaway: 1) De Beers 2 Negative Comments On Diamond Demand in Past Month - Staying short TIF. 2) Weekly Retail Sales still trending South.
TIF - De Beers 2 Negative Comments On Diamond Demand in Past Month
De Beers has made two moves over the past month that are extremely bearish for the diamond market and diamond demand more generally. First the company announced that it would be cutting rough diamond prices by up to 9% in the face of weak demand. And just yesterday De Beers committed to pumping marketing dollars into China to attract gift givers in the 18-29 demo and pump up its penetration in 3rd and 4th tier cities. The largest diamond producer in the world cutting prices and spending up to attract consumers in 3rd/4th tier cities is hardly comforting.
For TIF -- Asia Pacific as a whole makes up 25% of TIF's revenue, China holds ~10% of the company's global store base, and its exposure to the PRC consumer is even higher when you factor in tourism spend. Yes, TIF is at a higher end of the scale than De Beers, but when a company with 50% market share of the total sales volume shows cracks, it’s tough to argue that it won’t reverberate through the entire industry. Especially when you consider the fact that diamond jewelry as a % sales at TIF is at all-time highs.
We went negative on TIF a month ago and while numbers for next year have come down by 5% from $4.78 to $4.55 since the last print, we still think this a good short. The reality with this company is that there are no obvious margin levers to offset the declining growth profile in the business, especially amidst increased late cycle risks. We’re staying short this one.
The downward trend in the ICSC and Redbook sales indexes shows no sign of abating.
SPLS, ODP - NY Post reporting that the Staples - Office Depot merger may be stopped the FTC's Deborah Feinstein. The Post also ran an article cautioning FTC approval on the deal back in June.
NKE - Nike unveiled an expanded eyewear collection in collaboration with Kevin Durant. Glasses start at $200 for adults and $140 for kids.
OLLI - Ollie's Names Robert N. Fisch, CEO of rue21, to board of directors, expanding the board from 6 to 7.
SHLD, AMZN - Sears hires new president of fulfillment Girish Lakshman, who has 15 years of experience with Amazon.
SPWH - Sportsman's Warehouse making 6.25mm share offering, value of ~$88mm as of yesterday's close.
GCO - Genesco Board authorized a $100mm in stock repurchase, replacing ~$15mm remaining on prior $75mm 2013 authorization.
PLCE - The Children's Place is amending its current credit agreement to extend the term until September 2020 and increase the revolving credit limit from $200 million to $250 million. (http://www.sec.gov/Archives/edgar/data/1041859/000114420415055829/v420679_8k.htm)
Editor's Note: The chart and excerpt below are from this morning's Early Look which was written by Hedgeye analyst Matt Hedrick. Click here for more information on how you can subscribe.
...While the Bundesbank’s recent monthly report highlights a few shoots of positive economic indicators in Germany, we continue to be on the other side, signaling declines in rate of changes terms of our high frequency gauges, with our proprietary GIP (growth, inflation, policy) model signaling that Germany will enter the ugly Quad 3 in 4Q15, equating to growth slowing as reported inflation accelerates (or stagflation).
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