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Retail Callouts (10/15): NKE, WMT Wage Implications for Major Retailers, KSS

Takeaway: NKE BIG targets=Very Doable. Wouldn’t want to be a wholesaler while this occurs. WMT wage move=significant margin headwind for US retailers.


Takeaway: BIG targets = Very Doable. Say what you want, but the model’s changing for the better. Wouldn’t want to be a wholesaler while this occurs.

For Full Note CLICK HERE

For Our Black Book From 10/12 CLICK HERE



Takeaway: WMT’s blow-up is far from over. It’s about as late-cycle as we can fathom, and will absolutely hit those who haven’t proactively prepared.

For Full Note CLICK HERE


On wages more specifically - WMT will have invested $5,400 per employee over the remainder of this year and the next. If we apply that amount the relevant number of employees at each of the following retailers (see table below) ,it equates to a mid to high teen EPS hit for each retailer, except KSS which is at 24%. We probably won't see it play out all at once, but the bottom line is WMT is going to $10 per hour. And the company employs 16.5% of workers in the Food & Beverage, Health/Personal Care, Clothing, and General Merch categories. It's not just those who are currently below WMT on the pay scale who will feel the pain because others at the high end will have to keep the competitive gap in order to attract the right type of talent. Maybe a company like JWN or FL which pay sales associates on a commission basis won't feel the full brunt of the WMT induced wage pressure. But, for everyone else -- especially those  who have not proactively managed their expense line -- it’s a significant margin headwind.


2015 & 2016 WMT Wage Hike Equivalent

Retail Callouts (10/15): NKE, WMT Wage Implications for Major Retailers, KSS - 10 15 2015 chart1C

Retail Callouts (10/15): NKE, WMT Wage Implications for Major Retailers, KSS - 10 15 2015 chart2


BRBY - Burberry noting weakness in China saying "demand from luxury consumers, particularly Chinese customers, was affected by a more challenging external environment."



JAH - Jarden Corp acquiring Jostens for $1.5bn, 7.5x EBITDA.  Company sees synergy opportunities with Rawlings.



TGT - Target becoming first major card issuer to use credit cards with PIN number.  The new system will increase security for Red Card customers.



COST- Maggie Wilderotter, Chairman of Frontier Communications, joins Costco board.



ETSY - Etsy launches Same Day delivery option in New York called Etsy ASAP.  Service charges a flat rate $20 fee per order.


A Quick (And Crucial) History Lesson For Stock Pickers


“Most people in our business are stock pickers, sector pickers or nose pickers, but they’re not history people,” said Hedgeye CEO Keith McCullough on yesterday’s The Macro Show. Kidding aside, understanding economic history is as critical as ever. And as Keith points out in this excerpt, a number of key economic indicators are flashing red. 


Subscribe to The Macro Show today for access to this and all other episodes. 


Subscribe to Hedgeye on YouTube for all of our free video content.


CHART OF THE DAY: Soft Patch? $WMT and $JPM Suggest #SuperLateCycle Slowdown

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you'd like to learn more about subscribing to this contrarian daily research note. 


CHART OF THE DAY: Soft Patch? $WMT and $JPM Suggest #SuperLateCycle Slowdown - 10.15.15 chart


BREAKING NEWS: “Soft patch of data eroding the probability of Fed raising rates in 2015” –Hilsenrath, Wall Street Journal




JP Morgan (JPM) reporting a slow-down (and re-testing YTD lows) and Wal-Mart (WMT) losing the most market cap it has in one day in 25 years corroborates with a little more than a “soft patch”, though.  


Make no mistake. We’re talkin’ to you. This is a #SuperLateCycle slowdown.


You Talkin' To Me?

“Sometimes things strike a chord with people. Simple stuff.”

-Robert DeNiro


I was flying from San Francisco to LA last night and, taking a break from yesterday’s US Retail Sales and economic data slowing, I enjoyed reading Cigar Aficionado’s cover article conversation between Marvin Shanken and one of my favorite actors, Robert DeNiro.


Fully loaded with his 95 movie appearances and 2 Oscars winning performances, De Niro has too much epic content to count. But the aforementioned scene from Taxi Driver (1976) has to be one of the all-time greats.


“You talkin’ to me?” You think we’re gonna get a rate hike?  You think growth isn’t slowing? You talkin’ to me? Or are you long the Financials (JPM) and just talkin’ your book? I’m talkin’ mine this morning. That is the game. So let’s keep talkin.’


You Talkin' To Me? - de niro


Back to the Global Macro Grind


BREAKING NEWS: “Soft patch of data eroding the probability of Fed raising rates in 2015” –Hilsenrath, Wall Street Journal




JP Morgan (JPM) reporting a slow-down (and re-testing YTD lows) and Wal-Mart (WMT) losing the most market cap it has in one day in 25 years corroborates with a little more than a “soft patch”, though.  


Make no mistake. We’re talkin’ to you. This is a #SuperLateCycle slowdown.


Macro markets obviously agree with what we’ve been talkin’ about:


  1. US 10YR Bond Yield back below 2.0% this morning to 1.99%
  2. Russell 2000 -12.4% from her YTD top
  3. Gold leading gainers +1.7% alongside Treasuries yesterday


Oh, and the US Dollar re-testing her AUG 2015 lows where all of a sudden Down Dollar, Down Rates was seen for what it is – an obvious #GrowthSlowing signal.


But, but, Energy Stocks (XLE) we’re +0.9% on Down Dollar (oversold) yesterday – and Russian Stocks are +2.1% this morning (+9% in the last month) – isn’t that a “demand” signal, or something like that?


Uh, no. If it was, Consumer Discretionary (XLY) stocks wouldn’t have led on the downside (-1.0% yesterday) alongside the Financials (XLF) -0.8% and the Sector ETF (XLP) that has Wal-Mart, -1.2%. If growth was accelerating, rates would be rising too.


And this is what we’ve been talkin’ about on the road in California this week:


  1. Our #Deflation call is well over a year-old now and not as market-moving as our #GrowthSlowing call
  2. While both inflation and employment/consumption growth are classic #LateCycle indicators, consumption slows last
  3. As we enter a cyclical recession (globally), the jobs market looks #SuperLateCycle inasmuch as wage gains and spending do


Sometimes simple stuff, like cycles, strike a chord with people.


So we’re very appreciative of our growing audience on these matters as it’s not enough “this time” (it’s not different this time either) to blame everyone but consensus itself for not performing this year.


At 72 years old, Robert DeNiro gets that performance still matters.


To end on a positive note this morning, being right or wrong on Wall Street shouldn’t ultimately shape your life anyway. When Shanken asked DeNiro “what’s the one thing you haven’t done yet that you want to do before you die?”


DeNiro “pounded the table” and said: “I want to live as long as I can for my kids.” Amen, brother. You’re talkin’ to me.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.96-2.07%

RUT 1095--1179
USD 93.81-95.34
EUR/USD 1.12-1.15
YEN 118.25-120.48

Gold 1150-1187


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


You Talkin' To Me? - 10.15.15 chart

Down Dollar, Down Rates

Client Talking Points


The best longer-term idea we’ve had in Macro this year is Lower (Slower) For Longer, and the best way to express that view is being super bullish on the Long Bond (TLT) – 1.99% this morning with immediate-term oversold = 1.96%, in yield terms, but lower-highs across durations of resistance as #LateCycle employment and consumption (WMT -10% yesterday) slow.


We didn’t add Gold to the long side of our Macro Best Ideas until we could see what Gold loves more than anything else (Down Dollar, Down Rates – at the same time) in play; the question now is how fast can the U.S. data slow before ECB President Mario Draghi has to do EuroQE? That will be an up-Dollar #Deflation event; stay tuned; EUR/USD is signaling immediate-term overbought like Gold is at $1187.   


We made this our best incremental U.S. Sector Style Short on our Q4 Macro Themes call as we thought the next big surprise would be U.S. #GrowthSlowing (more so than #Deflation, which is over a year old theme for us) related – consensus is way longer XLF (Financials) than XLE (Energy) and we’d stay with that pivot until Draghi (or Japan) devalues vs. USD again.


**Tune into The Macro Show with Hedgeye CEO Keith McCullough and Financials analyst Jonathan Casetelyn at 9:00AM ET - CLICK HERE


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We think that the catalyst calendar is just starting to pick up, and should be the best that Restoration Hardware has seen – perhaps ever. There are two new and significant merchandising initiatives, which are solid on their own. But to pair them with the square footage growth acceleration seems almost like a fantastic coincidence. But it’s not. This has been in the plan all along. There’ll be many more new concepts and classifications – though we’d argue that the company can go deep and add $2bn in revenue with what it has.


To be clear, there’s much more to this story than just square footage growth – like the ability to consistently merchandise product people want in quantities they need.  Without the ability to deliver on that requirement, a retailer could have the greatest store in the hottest location with the best demographics, and it will still be nothing but a liability (regardless of how low the rent might be). That’s why square footage growth is grinding to a halt for other U.S. retailers. That’s also why the growth profile at RH is so powerful, and unmatchable by anyone we see in Retail today.


As we predicted, a rise in September regional revenues would serve as a catalyst for regional gaming stocks, and in particular, Penn National Gaming. For the record, PENN is up +12% since we added it to Investing Ideas back in May, outperforming the S&P 500 which has fallen -5% since then.


We believe shares of PENN have a lot more room to run, given its strong performance in key markets like Ohio and its successful opening in Massachusetts.  A handful of states still need to report their September revenue figures, but numbers have been in line with our expectations thus far.


PENN will be reporting Q3 earnings on October 22nd.


Bottom Line: We remain 50% below Bloomberg Consensus on GDP growth. Wall Street, the IMF, World Bank and OECD are all still forecasting global growth of around 3% for 2015.  We reiterate our call for growth to come in at or below half that rate.


While most #LateCycle growth expectations in macro markets peaked in April, the US stock market peaked in July as bond yields hit the market with their last head-fake of a “breakout.” That makes this bear market in growth expectations relatively young. With that considered, sit back and relax with your TLT and EDV.

Three for the Road


VIDEO: Why U.S. Recession Is Closer Than You https://app.hedgeye.com/insights/46867-mccullough-why-u-s-recession-is-closer-than-you-think… via @hedgeye



The quickest way to double your money is to fold it over and put it back in your pocket.

Will Rogers


Twitter is laying off 8% of its workforce nearly 336 employees to cut costs.




October 15: VAC 3Q CC ; PW: 13620306

October 15: WYNN 3Q CC , PW: 55746426 


NCLH - Regent Seven Seas will offer unlimited complimentary Internet to all passengers, starting with its winter 2016/2017 itineraries.  The luxury line, which already offers many inclusions such as alcohol, gratuities and round trip airfare, is also expanding its land tour program. Free three-night excursions will be offered in new locations such as Cape Town, Angkor Wat, Hong Kong and Beijing, and will include special experiences such as an African safari, a visit to the Great Wall of China or stop at a Thai elephant camp.



UBER - Uber has expanded its on-demand delivery service, UBER Rush in the US.  Stores can now have local couriers pick up and drop off their products to customers’ doorsteps in New York City, San Francisco and Chicago. Unlike Postmates, which offers a similar service in partnership with select retailers, UberRush can be integrated into merchants’ existing business models and included as a delivery option during checkout.


Small businesses can also opt to use ecommerce software from Uber partners Shopify, Bigcommerce, Clover, and ChowNow to power their online sales and start using UberRush right away. These platforms have make it easier to request deliveries as they automatically check if an order qualifies for UberRush based on its weight, size and destination.



UBER - London Mayor Boris Johnson has a message for cities resisting Uber Technologies Inc.’s ride-hailing service: disruption is inevitable and the best you can do is manage it.  “We licensed Uber a while ago in the knowledge that it will prove very difficult for the established black cab trade,” Johnson said. “We have to make sure that we do what we can to give the black cab trade a level playing field.”  


Takeaway: A slightly more positive tone coming from the London Mayor. UBER faces some big hurdles in a crucial market that is London. 


Casino Security - Macau’s Secretary for Security, Wong Sio Chak, said on Wednesday that the police have strengthened actions to prevent and combat illegal activities at the city’s casinos.  Mr Wong added that the increased surveillance would not jeopardise the development of Macau’s gaming sector. Mr Wong told local reporters that the police have already beefed up supervision and security controls in casinos and their vicinity. 



Dore Entertainment Update - The police estimate that VIP gaming promoter Dore Entertainment Ltd lost at least HK$520 million (about $66.67 million) in a theft which the company blames on a former cage manager, the Macao Daily News reports.  The Chinese-language newspaper quotes the police as saying they base their estimate on 49 complaints they have received.



Korean Casino Reps Arrested - Chinese police arrested 13 South Korean casino managers and several Chinese agents suspected of luring people from China to gamble in South Korea, state television reported.  In a report late on Tuesday, Chinese state television said police launched a probe in June into "criminal gangs" from five South Korean casinos, who "enticed" Chinese with free tours, free hotels and sexual services.  A South Korean tourism ministry official said the 13 Koreans are employees of Grand Korea Leisure Co Ltd (GKL) and Paradise Co Ltd, and that it was unclear if they had been charged.



Saipan Casino- Imperial Pacific International Holdings Ltd’s temporary casino on the Pacific island of Saipan has attracted more patrons than expected, according to the company’s managing director, Yan Shen.  Mr Yan told reporters in Hong Kong that the casino had had 5,700 to 5,800 customers a day since it opened in July.  The company will eventually replace the casino with a bigger, permanent one forming part of a complete resort.



Chinese Billionaire Index - The number of billionaires in China has overtaken that of the United States for the first time, an annual survey said Thursday (Oct 15), despite slowing growth in the world's second-largest economy.  China now has 596 billionaires, up a "staggering" 242 over the last year, Shanghai-based luxury magazine publisher Hurun Report said, surpassing the 537 Americans.  



Nevada Unemployment Rate - The jobless rate fell to 6.7% in the month of September. That was the lowest rate since July 2008.  Employers added 34,600 jobs YoY in September, for a growth rate of 2.8%. The month brought the 57th straight month of annual job gains.  Construction posted the biggest percentage growth rate, with an 8.8% increase that translated into 5,700 more jobs. The industry now has 72,000 jobs statewide, up from a low of about 46,000 in the recession, but just half of its peak of 148,000 in 2006.  The labor force grew as well, as job seekers entered the market. The state's work force of 1.43 million was 33,900, or 2.4%, higher than a year earlier.


Takeaway: Macro data out of NV and LV continues to improve. We expect accelerating growth in the LV locals casino market due to the improving economic environment (lower unemployment and higher housing prices) and more construction workers. We continue to like BYD on the long side. 


New Zealand Cruise Market- Cruise passengers cruising in New Zealand may have to pay an extra NZ$26.22 from next year, thanks to a new 'travel tax' to be imposed on 1 January 2016.  Travelers arriving in airports will pay the tax, but significantly less -- NZ$21.57 (incl. GST) per air passenger.  Although it is the cruise lines' responsibility to pay the tax for each passenger, they can choose to add the cost to cruise fares, according to the Tourism Industry Association New Zealand (TIA). 




  • Connecticut SS GGR:  +2.9% YoY
  • Detroit SS GGR: +4.3% YoY
  • West Virginia SS GGR: -3.3% YoY
    • PENN: +2.3% YoY

Takeaway: September results continue support our prediction of a sequential rebound in regional gaming revenues. BYD and PENN are our long calls in regional gaming. 

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