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RTA Live: December 11, 2015

 


[UNLOCKED] Keith's Daily Trading Ranges

Editor's Note: We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five are determined by what's flashing on Keith's radar screen and what tickers subscribers are asking about. Click here to subscribe.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.32 2.13 2.24
SPX
S&P 500
2,033 2,072 2,052
RUT
Russell 2000
1,131 1,172 1,149
COMPQ
NASDAQ Composite
4,987 5,092 5,045
NIKK
Nikkei 225 Index
19,010 19,447 19,046
DAX
German DAX Composite
10,308 10,856 10,598
VIX
Volatility Index
16.85 20.47 19.34
DXY
U.S. Dollar Index
96.70 98.73 97.93
EURUSD
Euro
1.05 1.10 1.10
USDJPY
Japanese Yen
121.24 122.69 121.61
WTIC
Light Crude Oil Spot Price
35.41 39.25 36.58
NATGAS
Natural Gas Spot Price
1.95 2.13 2.00
GOLD
Gold Spot Price
1,049 1,084 1,071
COPPER
Copper Spot Price
2.01 2.12 2.06
AAPL
Apple Inc.
113 119 116
AMZN
Amazon.com Inc.
653 682 662
GOOGL
Alphabet Inc.
754 772 760
NFLX
Netflix, Inc.
120 127 124
KMI
Kinder Morgan Inc.
13.23 18.64 16.81
RH
Restoration Hardware
85 93 87

 

 


Retail Callouts (12/11): Online #contentwins. RH | Lost in Translation, KSS

Takeaway: UPS, FedEx, Online Sales #contentwins. RH Lost In Translation, KSS lowering shipping threshold for rest of Holiday.

 

UPS Struggles to Keep Up With Surge in Web Orders -- Bearish For Retail Pricing Power

(http://www.wsj.com/articles/ups-struggles-to-keep-up-with-surge-in-web-orders-1449796191)

 

On the heels of 9 consecutive days of over $1bn+ in online sales (for the first time in history according to comScore), it's no wonder that UPS and FedEx are at capacity. It'll be interesting to see if the rest of the Holiday plays out like 2013 when packages promised on the 24th showed up well after Boxing Day or the understaffed shippers can somehow find a way to handle the volume -- or just flat out shut down the spigot.

 

What this means for retail...We think it's becoming abundantly clear that Brick & Mortar retailers who don’t have a REALLY profound value proposition to draw people into their stores are likely in the early stages of going away. Consumers can now go directly to the brands -- we all know that, or the best overall shopping experience (like Costco, where content does not matter, but assortment and price do).

 

Specifically, our strong sense is that if UPS and FDX came to the retailers or brands and demanded another price increase to secure capacity for on-time delivery, the retailers would pay it in a heartbeat, and they would have close to zero leverage in passing that through to you and me in the form of higher prices.

 

RH - Lost in Translation

Conclusion: This RH quarter is going to draw a Mason Dixon line between the Bulls and the Bears. On one hand, the key factors that the Bulls (including us) need to see were profoundly present – giving us confidence that revenue will double, that we’ll see a 16% operating margin, and $11 in earnings power. In addition, RH beat the quarter, delivered 33% EPS growth in what should be the slowest growth quarter of the year, and it took up 4Q revenue guidance based on what it’s seeing so far this quarter (to 20%+). On the flip side, the Bears got a nice little gift in the form of weaker Gross Margins due to promotional activity, and renewed concerns about management. The reality is that this is a transformational growth story that will change on the margin more often than it doesn’t. Even though the 30% short interest already captures a whole lot of bad news, this print won’t make people cover – and probably validates the pressure the stock came under earlier this week. We’ll respect it for what it is, but based on our confidence in the earnings power at play here, we’d use any weakness as an opportunity to buy. The market combined with noise around the evolution of this story gives you a shot at buying it on the cheap every six months or so. We’re thinking that this is one of those times.

For our full note CLICK HERE

 

KSS - Kohl's Shipping Threshold

 

KSS is running a Free Shipping promotion under $50 through the rest of the Holiday down from the $75 norm, and this is the second time we've seen the company go to the Free Shipping well this Holiday season. For a company where the only part of the top line that is growing is dot.com and competitors (Target) have gone completely free, this makes sense. But it's important to keep in mind that KSS dot.com sales come at a margin 1000bps below a Brick and Mortar sale, not to mention that management previously said that a $25 threshold wouldn't work economically over the longer term. If $25 threshold does not work long-term, then $0 definitely doesn't work short-term. 

Retail Callouts (12/11): Online #contentwins. RH | Lost in Translation, KSS - 12 11 2015 chart1

 

WMT - Wal-Mart Marketing Chief to Step Down. Company hiring Michael Francis one of the architects of Target’s cheap-chic image.

(http://www.wsj.com/articles/wal-mart-marketing-chief-to-step-down-1449776856)

 

DKS - Dick’s Sporting Goods Agrees To Pay $10mm Settle Overtime Pay Lawsuit

(http://footwearnews.com/2015/business/retail/dicks-sporting-goods-settlement-overtime-pay-lawsuit-175870/)

 

LOW - Lowe’s is including a “Santa Tracker” feature on its Iris by Lowe’s app that connects to the retailer’s Iris automated smart home system.

(http://www.retailingtoday.com/article/lowes-app-helps-customers-believe)

 

VRA - Vera Bradley Adds Mary Lou Kelley, Best Buy VP of e-Commerce, to Board of Directors

(http://investors.verabradley.com/releasedetail.cfm?ReleaseID=946425)

 

KR - Former Disney executive joins Kroger board

(http://www.retailingtoday.com/article/former-disney-executive-joins-kroger-board)

 

Belk - Sycamore Partners has completed its acquisition of Belk Inc.

(http://wwd.com/retail-news/department-stores/sycamore-seals-agreement-to-buy-belk-10295399/)


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

CHART OF THE DAY: The Great Unwinding of the Commodity Super-Cycle

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe.  

 

"... As you can see in today’s Chart of The Day (one of my favorite 20 year cycle charts in all of macro), the Commodity Super-Cycle crash we are witnessing today is largely a function both Greenspan and Bernanke devaluing the US Dollar to a 40-year low from 2001-2011.

 

That’s a decade of devaluing the purchasing power of hard working Americans (their currency) every time the US economy started to slow from its cycle peak. While the early 20th century had The Wright Brothers, the early 21st had The Central Planners."

 

CHART OF THE DAY: The Great Unwinding of the Commodity Super-Cycle - 12 11 Chart of the Day


Workingest Boys

“It wasn’t luck that made them fly – it was hard work and common sense.”

-John T. Daniels

 

One of the most recognizable pictures in the history of American innovation (“First In Flight”) is the Wright Brother’s original “Flyer.” John T. Daniels “was the amateur photographer who took the photograph of their first flight on December 17th, 1903.” (Wikipedia)

 

He was also one of the men who spent a lot of time with the Wrights in their workplace. He said “they put their whole heart and soul and all their energy into an idea and they had the faith.” (The Wright Brothers, pg 108)

 

While we don’t just have boys working here @Hedgeye, if there’s one thing I’m most proud of it’s how hard everyone works. I know - on Wall Street everyone thinks they work hard. Build a culture where you actually work harder than most, and your business will fly.

 

Workingest Boys - wright bro

 

Back to the Global Macro Grind

 

With the beloved “the market is flat” quote of the year (SP500) hovering below where it started the year (2058), many other components of the Global Macro market (Credit, Currencies, Commodities, EM, etc.) continue to crash into week’s end.

 

Not to cherry pick the composite performance of 2000 stocks instead of 30 or 500, but the Russell 2000 is down -5% for 2015 YTD. More importantly, it’s down -11.3% from the all-time #bubble high for US stocks that we called in July. The 2nd half of 2015 draw-down has been nasty.

 

What is a draw-down? You don’t need the Wright Brothers to build you a draw-down table:

 

If you lose this amount…              you have to return this to break even:   

 

-10.0%                                             11.1%

-11.0%                                             12.4%

-12.0%                                             13.6%

-13.0%                                             14.9%

-14.0%                                             16.3%

-15.0%                                             17.6%

-20.0%                                             25.0%

-25.0%                                             33.3%

-30.0%                                             42.9%

 

This is very basic math that most in the mainstream (who haven’t run client portfolios) don’t think about when they talk about what “the market” is doing vs. what it would need to do to get people who got plugged chasing charts back to break-even.

 

In other words, what is the catalyst to get:

 

  1. The Russell (2015) Bubble +12-13%, from here, to break even?
  2. The CRB Index (2011-2012 Bernanke Bubble) +33%, from here, to break even?
  3. Kinder Morgan (the Yield Chasing Inflation Expectation Bubble) +163%, from here, to break even?

 

That’s right. If you chased the Kinder Morgan’s (KMI) chart and bought it at $44.57, on April 23rd, 2015, your client’s account is First In Crashing to a level they’ll never be able to recover from. That’s why Kevin Kaiser putting all his energy into a SELL idea mattered.

 

I get why innovation in Wall Street Research hasn’t included many independent research firms that have literally 0% conflicts of interest. If you don’t have a bank, broker dealer, or asset manager on your platform, it’s really hard to “get paid.”

 

What you may not see is that when I started Hedgeye, I wasn’t looking to get paid. I was simply burnt out by the compromised and constrained ways of the Old Wall and wanted to build a better way. I really wanted to help the average person not crash again.

 

Forget what people who are in the business of marketing “the market is flat” are telling you, across asset classes we are in the midst of the 3rd major crash I’ve seen in my Wall Street career. All 3 coincided with a major economic cycle top:

 

  1. 1
  2. 2007-2008
  3. 2015-2016

 

Every one of these economic cycle tops had different asset bubbles underpinning their hopes that it was “different this time.” Not one of these cycle tops was different in terms of classic rate of change slowdowns in major economic factors.

 

As you can see in today’s Chart of The Day (one of my favorite 20 year cycle charts in all of macro), the Commodity Super-Cycle crash we are witnessing today is largely a function of both Greenspan and Bernanke devaluing the US Dollar to a 40-year low from 2001-2011.

 

That’s a decade of devaluing the purchasing power of hard working Americans (their currency) every time the US economy started to slow from its cycle peak. While the early 20th century had The Wright Brothers, the early 21st had The Central Planners.

 

No, that’s not to say that there wasn’t American innovation all the while (newsflash: most innovation is born out of necessity, not economic expansions). It’s simply to say what the mother of all economics risks remains the unwind of a centrally planned bubble.

 

I’m obviously not alone in defining history this way (they’re just time series charts). Most of the money managers who are having a fantastic year understand that The Deflation Risk is real and not “transitory.”

 

If you want to have a big-gravity-bending economist tell me that the Federal Reserve wasn’t the causal factor in USD Devaluation, that’s fine. I’ll smile and move along. I have too much work to do to argue with these people anymore.

 

It’s hard work and common sense that will preserve and build wealth during this slow-down. That’s not different this time either.

 

Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND research views in brackets):

 

UST 10yr Yield 2.13-2.32% (neutral)

SPX 2033-2072 (bearish)
RUT 1131--1172 (bearish)

NASDAQ 4 (bullish)

Nikkei 19010-19447 (bullish)

DAX 106 (bearish)

VIX 16.85-20.47 (bullish)
USD 96.70-98.73 (bullish)
EUR/USD 1.05-1.10 (bearish)
YEN 121.24-122.69 (bearish)
Oil (WTI) 35.41-39.25 (bearish)

Nat Gas 1.95-2.13 (bearish)

Gold 1049-1084 (bearish)
Copper 2.01-2.12 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Workingest Boys - 12 11 Chart of the Day


VIX, Natural Gas and the Russell

Client Talking Points

VIX

Nothing crushes returns like bullish breakouts in volatility – OVX (Oil Volatility) has ramped from 38 to 51 since early NOV (38 is an epic level of volatility to begin with) and now front-month U.S. Equity VIX has an immediate-term risk range of 15-22; that’s why “up days” in DEC have been fleeting.

NATURAL GAS

Natural gas us crashing to new lows, -1.2% through $2.00 this morning – that’s a lower-low and while last year they blamed the “cold winter” for slowing Q1 GDP, now they can blame the warm one for slowing Q4 GDP – you just can’t have cold or warm weather.

RUSSELL 2000

The Russell 2000 continues to lag the Dow and S&P 500 and is mentioned the least by the mainstream as a result. It is down -5% for the year-to-date and down -11.3% from the all-time #Bubble high in July, the deterioration under “the market’s” surface is very obvious at this point.

 

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

Asset Allocation

CASH 75% US EQUITIES 0%
INTL EQUITIES 5% COMMODITIES 0%
FIXED INCOME 15% INTL CURRENCIES 5%

Top Long Ideas

Company Ticker Sector Duration
MCD

Restaurants Sector Head Howard Penney had no material update on McDonald's (MCD) this week. However, here is what Penney wrote around when we added MCD to Investing Ideas. It's worth reiterating our high conviction in the stock:

 

"We continue to get more bullish every time we talk to the company, franchisees and/or customers which we have polled via conducting surveys. We are going to be looking at a much different company 1-3 years from now." 

 

"Urgency has been instilled from the top down by new CEO Steve Easterbrook," according to Penney. "This ship is in gear and headed north. 2015 will be the last time this stock is below $100."

RH

This RH quarter is going to draw a Mason Dixon line between the Bulls and the Bears. The key factors that the Bulls (including us) need to see were profoundly present – giving us confidence that revenue will double, that we’ll see a 16% operating margin, and $11 in earnings power. In addition, RH beat the quarter, delivered 33% EPS growth in what should be the slowest growth quarter of the year, and it took up 4Q revenue guidance based on what it’s seeing so far this quarter (to 20%+).

TLT

On went the game of slowing last week with a little central planning un-secretive sauce. Despite the ECB’s move to cut the deposit rate to -0.30%, Draghi didn’t ring the cowbell loud enough. Meanwhile, Friday’s jobs report might have been just enough for Janet to hike rates into a late cycle slowdown. The consensus long USD crowd was crushed on the ECB news. The dollar lost over 2% on Thursday and rates were pushed higher.

 

If growth is going to continue to slow, with a rate hike on the horizon, a relative fixed income spread play (long TLT, short JNK) is exactly what you want on.

Three for the Road

TWEET OF THE DAY

Peak M&A Is A Classic Late Cycle Indicator | $DD $DOW https://app.hedgeye.com/insights/48015-peak-m-a-is-a-classic-late-cycle-indicator-dd-dow @MariaBartiromo

@KeithMcCullough

QUOTE OF THE DAY

If you don't know where you are going, you'll end up someplace else.

Yogi Berra

STAT OF THE DAY

It's estimated that 70-80 million dogs and 74-96 million cats are owned in the United States. Approximately 37-47% of all households in the United States have a dog, and 30-37% have a cat (APPA).


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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