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Retail Callouts (10/8): Chip Speaks on LULU, AMZN, ETSY

Takeaway: Chip opines on LULU - company needs a change of address. Amazon officially launches 'Handmade' vs ETSY.

LULU - Chip Speaks on LULU

(http://www.theglobeandmail.com/report-on-business/lululemon-founder-takes-responsibility-for-controversial-remarks/article26692505/)

 

This was probably the least controversial  and most candid public comment Chip has made in over 3 years.  His comments on former CEO Day, apology for fat shaming his customers on Bloomberg, and thoughts on the present state of the company  don't surprise us in the least. He wouldn't have stepped down from the Board in February or announced that he was selling the rest of his stake in LULU if he felt otherwise.

 

As far as his comments on UA are concerned. Yes, UA has a market cap 3x LULU today and three years ago UA was in LULU's rearview. But, that is the inherent problem with both Chip's vision for the company (he wanted to switch the brand identity from yoga to 'mindfulness') and it's current distribution/brand segmentation. To even compare the two, LULU would need to double down on its ability to flow product more accurately throughout a multi-channel distribution platform, while maintaining price integrity, and its premium brand status

 

Separating the lululemon brand from its Founder was a win for the board, there is still a lot of wood to chop in Vancouver. We think LULU needs a change of address (not literally). This is an extremely powerful brand in a solid, yet increasingly competitive, space. LULU needs to not only be a great brand, but a great company. Then and only then will it be a great stock. We think management is coasting on the power of the brand, by tweaking a legacy operating plan, blindly opening stores, and hoping that nothing else goes wrong. Hope, however, is not a profitable growth process.

 

AMZN, ETSY - Amazon Handmade, a competitor to ETSY, has been officially launched.  The concept connects makers of handcrafted goods with Amazon shoppers.  Select sellers have been using the platform for several weeks.

(http://www.nytimes.com/2015/10/08/business/amazon-challenges-etsy-with-strictly-handmade-marketplace.html)

 

National Retail Federation Forecasts Holiday Sales to Increase 3.7%, vs +4.1% Last Year

(https://nrf.com/media/press-releases/national-retail-federation-forecasts-holiday-sales-increase-37)

 

AMZN - Jet.com, which launched July 21, has decided to abandon its membership fee model in hopes of attracting a broader customer base.  The $50 annual fee was planned to be the profit center for the company while selling at ultra thin margins.

(http://recode.net/2015/10/07/jet-com-overhauls-business-model-kills-50-membership-fee-to-broaden-appeal/)

 

TJX - The TJX Companies Announced Ernie Herrman as CEO, current CEO Carol Meyrowitz to Become Executive Chairman

(http://investor.tjx.com/phoenix.zhtml?c=118215&p=irol-newsArticle&ID=2094950)

 

Uniqlo - Fast Retailing Warns of Slowing Profit, Sales Growth

(http://wwd.com/retail-news/mass-off-price/fast-retailing-warns-of-slowing-profit-sales-growth-10257877/

 

Gilt Groupe to lay off 47 staff members as part of a restructuring to be cash flow positive.

(http://wwd.com/business-news/human-resources/gilt-groupe-cut-jobs-profit-cash-flow-flash-sale-fashion-10257799/)

 

TLYS - Edmond Thomas appointed President, CEO, and Board Member replacing Daniel Griesemer.

(http://phx.corporate-ir.net/phoenix.zhtml?c=247315&p=irol-newsArticle&ID=2095160)

 

AMZN - Amazon Prime Now expands 1hr and 2hr delivery in London market.  London was the first international Prime Now city launched back in June.

(http://www.ecommercebytes.com/cab/abn/y15/m10/i07/s02)

 


CHART OF THE DAY: #Crashing

Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Keith has been writing this morning market commentary for many years. Click here to subscribe and find out why so many smart investors make it the first thing they read every morning before market open.

 

CHART OF THE DAY: #Crashing - zzz 77

 

"...Today, at 1PM EST my research team and I will walk you through our 60 slide Q4 Global Macro Themes deck. 

 

#Crashing: Definitive crashes have occurred across many global macro markets in recent months. Those market participants on the wrong side of growth slowing and deflation are feeling the most pain ... Is the U.S. equity market next in line?"

 

 

 


Young Bears

“There’s no bear like an old bear.”

-Samantha Armstrong

 

Oh, to be a young cub again… what would consensus do to be able to go back to the April to July period of 2015 and have sold higher?

 

While most #LateCycle growth expectations in macro markets peaked in April, the US stock market peaked in July as US Treasury Yields were putting in their last head-fake of a “breakout.” That makes this bear market in growth expectations relatively young.

 

And, yes, I get the hedgie-perf-anxiety-disorder (#HPAD) that helped lead this week’s bounce to lower-highs. It is what it is – kind of like expecting GDP and the US 10yr would be > 3% in 2015. It’s entertaining to watch the storytelling of it all.

Young Bears - Lower Highs cartoon10.07.2015

 

Back to the Global Macro Grind

 

Today, at 1PM EST my research team and I will walk you through our 60 slide Q4 Global Macro Themes deck. As always, we’ll start the conference call by reviewing our most recent Q3 Macro Themes which were #timestamped in July as follows:

 

  1. #ConsumerCycle Slowing
  2. #SecularStagnation
  3. #EuropeSlowing

 

Themes 2 and 3 became clearer to consensus as the quarter played out. Most investors realize that the Slower-For-Longer case that was being priced into both the stock and bond market had plenty of confirming economic data to support it.

 

Theme 1 was less convincing… until the most recent US jobs report confirmed the top in the #LateCycle US Employment, that is. And, perversely, it was that rancid employment print that gave birth to this 1-week old baby bull in “reflation” expectations.

 

After all, there’s no bull like the Old Wall’s…

 

And Dollar Down (on Dovish Fed expectations post the jobs print) + Rates Down ripped both #YieldChasing and everything linked to Down Dollar Reflation (Commodities, Energy Stocks, Russia, etc.) higher.

 

Confusing a 1-week or 1-month old bull in “reflation” with accelerating demand was actually one of the biggest mistakes Consensus Macro made in 2015. That’s what had chart chasers buy the July top, don’t forget.

 

So today’s call won’t focus so much on that narrative fallacy as it will the core of what’s been our bearish growth theme all along – this young bear is about to go into her “mid-cycle” maturation process!

 

Just to give you a sneak-peak on why the “mid-cycle slowdown” thesis is probably as wrong as the bond market thinks it is (*note: not one of the strategists calling this a mid-cycle slowdown was calling for a slow-down of any kind 9 months ago, but they seem quite sure it’s not #LateCycle), here are our Top 3 Global Macro Themes for Q4 of 2015:

  • #SuperLateCycle (USA): Slowing growth typifies the twilight of an economic expansion and negative 2nd derivative trends are creeping in across much of the domestic fundamental data. From labor and manufacturing markets to consumer and business confidence, leading indicators are beginning to roll as the late-cycle moves past peak. We'll detail why Slower-And-Lower-For-Longer remains the call. 
  • #GlobalSlowing: With the Street, IMF, World Bank and OECD all still forecasting global growth of around 3% for 2015, we find it appropriate to reiterate our call for global growth to come in at or below half that rate. Moreover, while China's August CNY devaluation effectively made our #EmergingOutflows theme a consensus bearish cog in the global economic outlook, we do not think investors are appropriately positioned for a likely trend of negative revisions to the respective growth outlooks in the U.S., Eurozone and Japan throughout the balance of the year.
  • #Crashing: Definitive crashes have occurred across many global macro markets in recent months. Those market participants on the wrong side of growth slowing and deflation are feeling the most pain. Crashing inflation expectations are perpetuating the pain across all asset classes and sectors levered to unrealistic growth expectations (energy, industrials, materials), as well as across the high-yield bond market, commodity markets, commodity currencies. Is the U.S. equity market next in line?

After adding the SP500 (SPY) to our Best Short Ideas Short list in July (we summarize our Themes each quarter with our best long/short ideas across our TRADE, TREND, and TAIL durations), we’ll reiterate that call again today.

If you’re an intermediate to long-term investor, you should be well equipped to risk manage these intermediate-term TREND themes. If you’re more of a chase the daily emotion of the S&P Futures type of a guy/gal, I’ll give you some risk ranges for that too (no immediate-term support to 1860 SPX).

 

If the new bull market thesis is getting back to break-even for 2015, that’s cool. I get it. Everyone who is in the business of being perma-long growth expectations needs to start somewhere. Sort of like this bear market – she’s just getting started.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.96-2.09%

SPX 1
DAX 99
EUR/USD 1.11-1.13
Oil (WTI) 46.02-48.99

 

Best of luck out there today,

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Young Bears - zzz 77


Early Look

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The Macro Show Replay | October 8, 2015

 


Japan, Spain and UST 10YR

Client Talking Points

JAPAN

Down Dollar (post bad jobs report, slowing ISM, etc.) = Up Yen --> developing bearish TREND in Nikkei – with many hoping “China opening up” post the break could drive the next leg of SPX squeezage. The Nikkei didn’t cooperate, failing @Hedgeye TREND resistance -1% overnight.

SPAIN

Spain is the best short idea in European Equities (we will review this on our Q4 Macro Themes call today at 1PM) is leading losers in Europe this morning -0.8% with no support for the IBEX to the year-to-date closing lows; in other news, Deutsche Bank news has to be bullish, because it’s so bad? Short JPM.

UST 10YR

The bond market, once again, doesn’t care about performance issues in U.S. equities – 2.04% UST 10YR Yield with no support to 1.96% ahead of earnings season and what should be a slowing U.S. GDP report at the end of October.

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough in the studio at 9:00AM ET - CLICK HERE

 

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 8%
FIXED INCOME 27% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
GIS

Our Consumer Staples team remains positive on General Mills coming out of the 2Q15 earnings call. We have been LONG GIS for the last six months and continue to have a favorable view of the company due to the following reasons:

  • Sequential improvement in cereal
  • Growth in Natural & Organic categories
  • Snacking
  • Cost cutting initiatives
  • M&A activity

 

PENN

Many of the regional gaming states will release September revenues next week and as we’ve written about, they should look a lot better than August. Overall same store revenue declined 5% in August (we had predicted –2%) but most of the decline was due to the calendar and a difficult comparison. For September we are projecting an increase of 2% YoY

 

Our Missouri tracker is forecasting September gaming revenues to be up 3.6% YoY. This is a 6% sequential improvement from August's YoY change of -2.5%. Meanwhile, Pennsylvania slot revenues were up 4% in September. Our thesis for a sequential rebound in September remains intact. We like PENN on the long side from these levels.

TLT

It was an important couple of weeks for those who were still wrestling with our lower-for-longer views. The brevity of the macro moves post-report Friday proves just how non-consensus that call remains in a year where the S&P 500 is down -8%. The scary thing with regard to Janet’s credibility is that bad news is now being priced in as bad news. Moreover, we believe this late-cycle weakness is likely to remain ongoing.  

Three for the Road

TWEET OF THE DAY

NEW VIDEO | Here’s Why Industrials Are Up (And Why That May Be a Bearish Omen) | $XLI https://app.hedgeye.com/insights/46752-here-s-why-industrials-are-up-and-why-that-may-be-a-bearish-omen… via @KeithMcCullough #MARKETS

@Hedgeye

QUOTE OF THE DAY

Our greatest glory is not in never falling, but in rising every time we fall.

 -Confucius

STAT OF THE DAY

Early goalie-pulling has become a trend in the NHL, league-wide, 18 teams had an average pull time of more than 70 seconds remaining when trailing by a goal. Between 2007 and 2011, just a single team pulled its goalie with more than 70 seconds remaining in the game, on average.


October 8, 2015

October 8, 2015 - Slide1

 

BULLISH TRENDS

October 8, 2015 - Slide2

October 8, 2015 - Slide3

October 8, 2015 - Slide4

 

 

BEARISH TRENDS

October 8, 2015 - Slide5

October 8, 2015 - Slide6

October 8, 2015 - Slide7

October 8, 2015 - Slide8

October 8, 2015 - Slide9

October 8, 2015 - Slide10

October 8, 2015 - Slide11


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