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Cartoon of the Day: Blast Off!

Cartoon of the Day: Blast Off! - Rate hike cartoon 11.30.2015

 

"Janet Yellen would be first Fed Head in modern times to raise interest rates into recessionary data," wrote Hedgeye CEO Keith McCullough earlier today.


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The Best Deal Hedgeye Has Ever Offered (Today Only) - best deal

 

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Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT

Takeaway: We're net sellers of Retail.

We'll leave all the Black Friday chest-thumping and cherry-picking to Wall Street and the mainstream media. The outlook for the Retail sector isn't pretty.

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - Retail cartoon 12.01.2014

 

Below is an excerpt from a detailed research note written by Hedgeye Retail analyst Brian McGough sent to institutional subscribers earlier this morning:

 

"... We’re happy to get into the debate about how crowded the parking lot was at the mall this weekend, but it’s nowhere near as relevant as the current profitability growth trajectory for Retail, and the consensus expectations for the group as we head into 2016.

 

The good news is that 4Q [consensus] sales estimates look only slightly high. The bad news is that margins expectations are still 50-100bps high for the group. The worse news is that the Street’s numbers are banking on a recovery in growth and margin starting in 1Q16. In other words, it’s chalking up this ‘thing’ retailers are feeling now as exactly what management teams want us all to believe – while they cross their fingers, hope and pray that the economy is not really slowing.

 

The group might be viewed as damaged goods in this market, but keep in mind that it’s only down 4.3% for the YTD vs a 1.5% gain for the market – not a big difference. It’s trading at 18-19x earnings, and has short interest that is disproportionately low for an economy that is #LateCycle. We’re net sellers of Retail."

 

To be clear, McGough and his team currently have twelve short ideas and six longs.

 

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - BF

 

If you were watching Thursday and Friday's morning business news, you probably noticed the non-stop coverage of Black Friday sales. For the record, McGough puts this comparatively modest post-Thanksgiving shopping into perspective:

 

"... I think most of us would agree that basing one’s view on a small handful of stores is a pretty useless exercise given that there are about 1,100 regional malls and 7,100 shopping centers in the US, which combined account for $5.3 trillion annually, $2.5 trillion in discretionary spending -- nearly $300 billion of that falls in the month of December alone." 

 

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - XRT

 

Forget about Wall Street's Black Friday storytelling. It's almost immaterial in the grand scheme of things.

 

Moreover, watch out over the next few quarters. The U.S. economy IS slowing. As this evolves, a clear, yet underappreciated, trend is developing among Retail stocks...

 

And it's Down, Down, Down. 

 

 

Editor's Note: To access McGough's Retail sector research email sales@hedgeye.com


Early Look

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McGough: Retail Looks Risky, But If I Had to Own Two Stocks…| $XRT

 

In this brief excerpt of The Macro Show this morning, Hedgeye Retail analyst Brian McGough discusses underappreciated risks lurking in retail right now. He also answers a subscriber’s question about which stocks he would own despite his current apprehension of the sector. 

 

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.


INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing

Takeaway: The dollar's strength continues to crush commodities.

INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing  - strong dollar

 

"The Euro was down another -0.5% last week (-12.4% YTD vs USD) and down again this morning as the USD Index ramps above 100," writes Hedgeye CEO Keith McCullough in a note to subscribers this morning. "Commodity markets don’t like this at all. The CRB Index remains in crash mode down -20.1% YTD."

 

Take a look at the ramp up in the U.S. dollar index since mid October.

 

INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing  - usd2

 

As McCullough notes, the CRB index is getting crushed by the strong dollar move.

 

INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing  - crb2

 

That's important.

 

By the time we get to Fed head Janet Yellen’s testimony in front of the “Joint Economic Committee” (JEC) in Washington on Thursday, more #StrongDollar Deflation will still have our esteemed authorities guessing.


Monday Mashup

Monday Mashup - CHART 1

 

We added Pinnacle Foods (PF) to our SHORT bench this week. We believe that the acquisition of Boulder Brands will not prove to be as lucrative as management is laying it out to be. We are going to be doing more research into the name over the coming weeks as we solidify our thesis.

 

RECENT NOTES

11/24/15 NUS THOUGHT LEADER AUDIO REPLAY

11/24/15 THOUGHT LEADER CALL MATERIALS | NUS | ON NOTICE

11/18/15 CAG | SMOOTH MOVES

11/13/15 NUS | SHOW ME THE MONEY!

11/13/15 NUS | BLACK BOOK PRESENTATION REPLAY

11/10/15 HAIN | THE COMPETITIVE ISSUES ARE JUST BEGINNING

11/05/15 BDBD | ADDING IT TO THE LONG BENCH

 

SECTOR PERFORMANCE

Food and organic stocks that we follow outperformed the XLP last week. The XLP was up +1.1% last week, the top performers on a relative basis from our list were Amira Natural Foods (ANFI) and Boulder Brands (BDBD) posting increases of +30.9% and +14.4%, respectively. Boulder Brands’ significant increase was due to them entering into an agreement to be acquired by Pinnacle Foods. The worst performing companies on a relative basis on our list were Snyder’s-Lance (LNCE) and Mead Johnson (MJN), which were down -1.7% and -2.0%, respectively.

Monday Mashup - CHART 2

 

XLP VERSUS THE MARKET

Monday Mashup - CHART 3

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is BULLISH in the TRADE and TREND duration.

Monday Mashup - CHART 4

 

Food and Organic Companies

Monday Mashup - CHART 5

Monday Mashup - CHART 6

Monday Mashup - CHART 7

Monday Mashup - CHART 8

 

Keith’s Three Morning Bullets

Damn the data – it’s all about central planning events this week. Yellen and Draghi have a busy schedule!

 

  1. EURO – down another -0.5% last wk (-12.4% YTD vs USD) and down again this morning as the USD Index ramps > 100; Commodity markets don’t like this at all as the CRB Index remains in crash mode, -20.1% YTD
  2. EM – as long as you only look at the Nasdaq, everything is fine – EM and LATAM stocks deflated another -0.6% and -2.4% respectively last week and EM Asia (Indonesia -2.5% overnight) isn’t responding well to #StrongDollar either
  3. YIELDS – super spike in the short-end (2yr = 0.95%) continues to flatten he curve (10yr minus 2yr testing YTD lows at 128bps wide this am) – so the Fed can tighten into a slow-down and perpetuate the late cycle slow-down by doing so

 

SPX immediate-term risk range = 2045-2109; UST 10yr Yield 2.18-2.28%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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