Don’t Believe the Fed’s ‘Serial Over-Optimism’

Don’t Believe the Fed’s ‘Serial Over-Optimism’  - Fed forecast cartoon 03.02.2015


As investors wait for the final denouement from the Fed today, we’re reminded of a slide from our Q4 Macro Themes deck about the Fed’s forecasting track record.


In short, don’t trust the Fed’s "dot plot."


Don’t Believe the Fed’s ‘Serial Over-Optimism’  - 10 28 2015 Fed dot plot


For folks putting too much stock in central planner sagacity, consider that the Fed’s “dots” suggest interest rates hikes will extend into 2018. No worries, if you believe the Fed's growth forecast out that far. Note that continued economic growth into 2018 would imply one of the longest expansions ever. 


Believe those dots at your own peril.


By our tally, the Fed’s GDP forecasts have consistently overestimated growth, every year over the past 5 years, to the tune of 100 basis points. You know where we stand, #GrowthSlowing and rates #LowerForLonger.


Editor’s Note: Hedgeye CEO Keith McCullough is hosting a LIVE + INTERACTIVE online event today at 2:10pm ET offering immediate market reaction and commentary on the Fed statement. Click here to listen in.

Invite To Macrocosm: The Dock Debates

We are proud to present our first annual conference Macrocosm: The Dock Debates in Stamford, CT on Wednesday, November 18th from 12 - 7pm.  


Hedgeye CEO Keith McCullough will moderate five panels with experts on various macro topics including Currency Wars, Consequences of QE, Europe, Demographics and Healthcare. Panelists include David Einhorn, Jim Rickards, Michael Aronstein, Daniel Lacalle and Jurrien Timmer among others. Click here for the full roster and bios. 


Importantly, there will be ample time allocated at the end of each debate for interactive audience Q&A.


This event is off the record (i.e. not open to any media) and seating is limited so please contact sales at for pricing and availability.


Invite To Macrocosm: The Dock Debates - Macrocosm1

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Hedgeye Was Short (And Remains Short) Twitter | $TWTR

Takeaway: It paid to listen to Hedgeye Internet analyst Hesham Shaaban on Twitter.

Twitter’s long-term growth prospects look increasingly suspect. Shareholders learned that lesson the hard way after the bell yesterday. The stock has fallen 7% after the social networking site reported declining “monthly average users.” In other words, fewer eyeballs viewing ads and lower revenue guidance.


Hedgeye Was Short (And Remains Short) Twitter | $TWTR - zz vv


The miss was no surprise to us here at Hedgeye. In fact, the bearish case on TWTR has been the mantra of Hedgeye Internet & Media analyst Hesham Shaaban since issuing his original Black Book on the stock, pre-IPO on Nov. 2013. 


Since then shares are down 30%.


Hedgeye Was Short (And Remains Short) Twitter | $TWTR - 10 28 2015 twitter chart


Hedgeye Was Short (And Remains Short) Twitter | $TWTR - 10 28 2015 keith twtr


Hedgeye Was Short (And Remains Short) Twitter | $TWTR - z vv


Here’s a small snapshot of a research update sent out to subscribers this morning.


Hedgeye Was Short (And Remains Short) Twitter | $TWTR - 10 28 2015 twitter note


And two recent HedgeyeTV videos of Shaaban laying out our bearish Twitter thesis.


The Crossroads: Here’s What Twitter Management Needs to Do, 9/3/2015


Why Twitter's Problems Run Deep, 6/15/2015


Editor's Note: If you’d like to learn more about our institutional research offerings or access our Twitter research please ping


Retail Callouts (10/28): KSS Greatness Agenda Part 2, Tory Burch, BGFV

Takeaway: KSS Greatness Agenda Part 2. Tory Burch says no IPO, likely waiting for a better public market premium.

KSS - Kohl’s part 2 of Greatness Agenda to include smaller stores, Off-Aisle, and Fila Outlets



The only thing better than a Greatness Agenda is a Greatness Agenda part 2. There wasn't much meat to this press release outside of the new concept announcements (Fila Outlet Stores, KSS Off Price, and 5-10 35k sq. ft. stores) and Mansell reiterating the $21bn in sales by 2017. That sales target has nothing to do with the four pillars the management team adamantly insists are performing at or above plan despite the fact that the actual proof measured by comps in our book has been far below the 3% annual comp the company needs to report if it wants to hit its sales targets. Just to hit the 1.5% - 2.5% guide for the year KSS needs to print a 2H comp of 2% - 4% after a 0.7% in 1H against much tougher compares.

That leads us to believe that if KSS isn't going to hit its $21bn organically. Meaning its going to put more emphasis on non-core business to manufacture a little bit of top line growth with little concern about what that does for either margins or returns.


KSS remains one of our top short ideas. The bigger call on the name is that annual earnings are likely to never grow again. To put that into context, we’ve got numbers between $3.25-$3.75 from 2016-18. That’s 30% below the consensus, which has earnings marching over $5.00.


Tory Burch - Tory Burch and Roger Farah say they have no plans to go public and they enjoy running a privately held company.



Ms. Burch can say all she wants that she has no intention of going public -- but that was not always the case. Farrah was brought in from Ralph Lauren to drive the next leg of growth and then take it public. But a couple of things have happened since. 1) the 'space' imploded' in the equity market, and 2) trends at Tory Burch have been a lot closer to Kors, Coach, or even Ralph Lauren than Kate Spade (which is crushing it). Our sense at this point is that Farrah will do his 'thing' at Tory over the course of a couple of years until the growth characteristics of the company will allow it to go public at a premium multiple regardless of the liklihood that Coach will still be clinging to unrealistic margin and growth targets.

Retail Callouts (10/28): KSS Greatness Agenda Part 2, Tory Burch, BGFV - 10 28 2015 chart1


BGFV  - 3Q15 Earnings

The headline earnings number and revenue were a little weak, but that underscores the actual trends in the business. Earnings were down 20% in the quarter on a -0.4% comp. The mid-point of the 4th quarter guide if we back out the benefit from the 53rd week implies earnings down 30% in the 4th quarter as QTD comp trends are down in the LSD rate. Add to that the fact that BGFV just hired a consultant to assess growth plans and try to fix the P&L after the e-comm launch ate away 200-300bps of margin.

Retail Callouts (10/28): KSS Greatness Agenda Part 2, Tory Burch, BGFV - 10 28 2015 chart2


ETH  - 1Q16 Earnings

Retail Callouts (10/28): KSS Greatness Agenda Part 2, Tory Burch, BGFV - 10 28 2015 chart3 B


TGT - Target tests international expansion through online portals



FDX, UPS, AMZN - FedEx and UPS expecting 12% and 10% increases in holiday shipping volume respectively.




RAD, WBA - Walgreens Boots Alliance to Acquire Rite Aid for $17.2 Billion in All-Cash Transaction



CHS - Chico's FAS Announces Shelley Broader as President and Chief Executive Officer



TWTR | Auto-Play Action (3Q15)

Takeaway: It appears TWTR's monetization targets are still trumping its user growth priorities, which is becoming a longer-term structural issue.


  1. BAD PRINT, SMART MOVE: TWTR 3Q's results came above estimates, which was largely expected given the preannouncement.  MAU growth wound up missing expectations, with US MAU growth slowing to 5% y/y (ex FFs).  TWTR took its first step toward rebasing 2016 expectations by issuing 4Q guidance ~$40M below consensus estimates, with the midpoint of guidance assuming 47% y/y growth, which is a deceleration of 11 percentage points from 3Q15, and basically inline with what consensus is expecting for growth for all of 2016 (45%).  Naturally, we should expect 2016 estimates to come in from here; question is how much.
  2. AUTO-PLAY ACTION: TWTR’s ad engagements spiked 94% sequentially, alongside a -42% decrease in CPE; collectively a divergence that we haven’t seen since the 2Q13 Supply Shock, suggesting that TWTR may be stuffing the feed with more ad load (see chart and note below for detail).  While mgmt suggested that ad load remained flat q/q, it also stated that autoplay "uses less inventory on a monetization basis".  That basically means that auto-play has a lower engagement threshold vs. TWTR's legacy ad products (e.g. 3-second view vs. ad click).  That said, TWTR essentially swapped out its legacy ad load for more intrusive ads that are harder to avoid, which is basically the same thing as stuffing the feed.
  3. MORE OF THE SAME?  We suspect TWTR has been chasing short-term upside at the expense of long-term damage to its model in the form of cumulative US MAU churn (HRM survey = 38%), which we attribute to surging ad load.  While mgmt unapologetically guided light for 4Q, which is encouraging, it still appears that its monetization targets are trumping its user growth priorities (Point 2).  That said, if TWTR continues to chase estimates with excessive increases in ad load next year, it will come with the risk of a potential y/y decline in US MAUs.  We wouldn't be too quick to rule that out given its heightened cumulative churn and growth already slowing into the mid-single digits.


TWTR | Auto-Play Action (3Q15) - TWTR   Ad eng vs. Price q q 3Q15

TWTR | Auto-Play Action (3Q15) - TWTR   Ad eng mau q q



See notes below for supporting analysis on TWTR's user retention issues and monetization strategy.  Let us know if you have any questions, or would like to discuss further.  



Hesham Shaaban, CFA




TWTR: The Crossroads  (User Survey: n=7,500)
08/25/15 07:48 AM EDT
[click here


TWTR: What the Street is Missing
05/19/14 09:09 AM EDT
[click here]

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