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Retail Callouts (12/16): Gary, Chip, Tory stirring up the pot -- some better than others.

Takeaway: Gary, Chip, Tory stirring up the pot -- some better than others. Buy RH, short LULU ahead of next blowup/CEO sack, Buy KATE into a big '16.

RH - Gary Crushed it on Cramer

We have to give Gary Friedman props for his approximately nine minute segment on Cramer last night. Let's face it, him going on what's arguably the most volatile and biased financial media platform in an unscripted way is not what we wanted to see.  The risk of fireworks was high. But he capped off a successful day RH (CFO and IR) had on the investor conference circuit by focusing on the real value drivers at RH -- growth in product concepts, and RH's real estate transformation.  The appearance was planned well before the earnings release, by the way, coinciding with a business-focused trip to NYC. All-in, it was a positive event for the stock.

 

LULU - Watch This Video. There's a Lot of Chip-isms here.

(http://www.bloomberg.com/news/videos/2015-12-14/lululemon-founder-i-thought-of-buying-under-armour)

 

Chip popped on Bloomberg to talk about his new venture with his wife and son -- Kit and Ace, but naturally the conversation focused entirely on the direction and problems at LULU. Chip held his tongue, most likely because of the gag order agreed upon when Advent bought half of his stake, and attributed LULU's problems to a 'culture problem'. You could argue that it was exactly this that got LULU into the mess it has found itself in the first place. Chip's belief that LULU was a talent incubator resulted in a management team that wasn't qualified to run a company with $12bn in market cap. And we are not convinced the new team in place today is much better.

Chip all but confirmed that he was pushed out by board politics, and we think the catalyst there was the hiring of Laurent Potdevin as CEO. He pushed for Laurent to be hired as CEO. The Board knew Laurent was unqualified, so Chip traded his Chairman title/power for the CEO appointment. That led to Wilson being effectively neutered on the Board, and to him selling his stock.

And yes, we stand by our statement that Potdevin will be fired within six months in conjunction with another blowup and restructuring for LULU.

Those are the biggest takeaways from the interview from where we sit, not the idea that LULU could/should have purchased UA. The thought that Kevin Plank would allow a deal like that to even be discussed when he has two-thirds of the voting stock is almost comical.

The video is actually worth a watch -- if for no other reason than to see the journalists ask the worst questions we've ever heard asked of an industry veteran.

 

TORY BURCH LAYS OFF 100 EMPLOYEES

(http://www.hollywoodreporter.com/news/style-notes-derek-zoolander-poses-848731)

 

This story is a few days old, but we got a few questions on it yesterday. So here's our take.  It's interesting to us that people view Tory Burch as a preeminent  brand in the luxury space. Consider this...the footprint of the brand was around $1.9bn last year. That compares to Michael Kors at nearly $9bn, and Coach at $7bn. Kate Spade was only $1.4bn in 2014. So yes, Tory is bigger than Kate -- for now.  Tory Burch's layoffs are just the culmination of issues it's been having with its business for 2-years...the same issues that led to hiring Roger Farrah (RL) as Co-CEO in late 2014. Our prediction -- KATE will surpass Tory Burch in size and profitability (forever) within two quarters.

 

TGT - Tech security firm says it's easy to hack Target gift registry apps

(http://www.startribune.com/tech-security-firm-says-it-s-easy-to-hack-target-gift-registry-apps/362582411/

 

Over the past 2+ years we've seen a collection of execution/security gaffes at TGT. Running through them in order... 1) Data breach in 2013. 2) e-commerce site malfunction during the Lily Pulitzer launch in April 2015. 3) e-commerce site malfunction during Cyber Monday 2015. 4) Gift registry app allows hackers access to personal information. Most of the issues have been centered on the e-comm channel and that's no surprise given that TGT didn't assume full control of the business until 2011 when it kicked its former partner AMZN to the curb. To catch up we think TGT needs invest heavily in this channel if it wants to grow this business at a 40% CAGR (something its been unable to do 2015 YTD). For context, WMT is spending $1.1bn on e-commerce investments in 2016 alone. With the closure of the CVS pharmacy deal announced today, the low hanging fruit for Cornell is all but gone.

 

TGT, CVS - CVS Health and Target Announce Completed Acquisition of Target’s Pharmacy and Clinic Businesses

(http://investors.target.com/phoenix.zhtml?c=65828&p=irol-newsArticle&ID=2123024)

 

AdiBok - Adidas sees +8% growth in sales in North America, two-digit growth in the following year. But Nike too good to be messed with

(https://epaper.handelsblatt.com/vhb_epaper_neo_p/?ticket=ST-161570-gM4eMV16XNbGsoQFIs2X-s02lcgiacc01.vhb.de#article/11/Handelsblatt/2015-12-16/1/5766838)

 

Prada Makes Adjustments Amid Slow Sales

(http://www.wsj.com/articles/pradas-net-profit-plunges-26-1450190933)

 

Rakuten to Set Up Shop on China’s JD.com

(http://www.wsj.com/articles/rakuten-to-set-up-shop-on-chinas-jd-com-1450258024)


CHART OF THE DAY: Long-Term Rates Don't Lie About Growth

CHART OF THE DAY: Long-Term Rates Don't Lie About Growth - 12.16.15 chart

 

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.

 

"... You don’t have to be the Wright Brothers to understand the very basic physical nature of long-term bond yields vs. the rate of change in real-growth:

 

  1. When GROWTH is accelerating on a TREND basis, long-term yields rise
  2. When GROWTH is decelerating on a TREND basis, long-term yields fall

 

That’s why the longest of “long-term investors” have been right to bet on Lower-For-Longer at every long-term-lower-high in the 10yr Yield. It’s Slower-For-Longer, eh."


Can She Fly?

“Gentlemen, I am going to fly.”

-Wilbur Wright

 

And that, the Wright Brothers did.

 

But will Janet Yellen?

 

Ladies and gentlemen, you are about to see an exhilarating political liftoff whereby a dove will pretend to look like a hawk. Then, (within minutes maybe) you’ll be considering a dove being a dove again. I’ll have LIVE analysis @HedgeyeTV at 2:10PM EST.

Can She Fly? - Yellen cartoon 09.17.2014NEW

Click here to join Hedgeye CEO Keith McCullough live on The Macro Show at 9am. 

 

Back to the Global Macro Grind

 

Ahead of this historical Fed decision, I’m running out of original content, so bear with me while I update you with yet another data-driven perspective – that of the Bank of England (BOE).

 

Mark Carney (head of the BOE) stole some headlines this morning by reversing his hawkish course, saying that “rate hike conditions are unfulfilled.” Yep. He told the truth and said that both the growth and #deflation data has slowed since July.

 

Ultimately, you don’t need a central-planner who is analyzing data (and market moves) on a political lag to remind you what part of the world has already had precipitation. But it is nice to see that some of these people are somewhat objective.

 

Dollar Up, Pound Down on that…

 

And what you’d expect to happen on the 1st US rate hike day in 9 years (1st hike into a corporate profit slow-down since 1967), in FX and Rates markets, is happening right now too:

 

  1. US Dollar +0.1% vs. the Euro to $1.09 EUR/USD with bearish TREND resistance for EUR/USD = $1.13
  2. US Dollar +0.3% vs. British Pound to $1.50 with bearish TREND resistance for GBP/USD = $1.54
  3. US 10yr Yield +3 bps on the day to 2.27% (after dropping to 2.13% on last week’s US #GrowthSlowing news)

 

Interestingly, Global Bond Yields have “bounced” off the lows into this Fed hike too:

 

  1. Swiss 10yr +19 basis points (bps) month-over-month to -0.19%
  2. German 10yr +11 bps month-over-month to 0.64%
  3. Italian 10yr +11 bps month-over-month to 1.67%

 

Notwithstanding the basic observation that all of the aforementioned 10yr Yields remain below that of the US 10yr Yield, it’s important to note that British Yields are actually down (1 beep on the 10yr) in the last month on this dovish BOE pivot.

 

When the growth and inflation data slows, I pivot – what do you do, Sir (and Madame)?

 

So, let’s say that after an hour (or day) of rate-hiking, the market forces Yellen to pivot. Yesterday’s 0.0% CPI (consumer price inflation reading) and this morning’s US Industrial Production report (reminder, it’s in a recession) definitely support that.

 

Then what?

 

Does the Dollar go down? What if it doesn’t (because the Euro, Pound, and Yuan are being centrally planned down)? What if the Dollar doesn’t do anything but rates start going down (again)?

 

Damn that data. It’s been crashing those who have been betting on higher-rates for almost 2 years.

 

For those of you who are new to following Hedgeye, we were bullish on US #GrowthAccelerating and bearish on the Long Bond (bullish on #RatesRising) for all of 2013. That, incidentally was the year consensus was actually bearish on rates!

 

You don’t have to be the Wright Brothers to understand the very basic physical nature of long-term bond yields vs. the rate of change in real-growth:

 

  1. When GROWTH is accelerating on a TREND basis, long-term yields rise
  2. When GROWTH is decelerating on a TREND basis, long-term yields fall

 

That’s why the longest of “long-term investors” have been right to bet on Lower-For-Longer at every long-term-lower-high in the 10yr Yield. It’s Slower-For-Longer, eh.

 

With neither growth nor inflation accelerating, you’re probably going to witness the most dovish “rate hike” in US history today. Ladies and gentlemen, she is going to fly alright – in 10yr Yield terms, if she’s lucky maybe 10 beeps.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.12-2.36%

SPX 2003-2060
RUT 1105--1163

VIX 17.98-25.21
USD 97.01-99.54
Oil (WTI) 34.08-37.97

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Can She Fly? - 12.16.15 chart


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The Macro Show Replay | December 16, 2015

 


December 16, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.36 2.12 2.28
SPX
S&P 500
2,003 2,060 2,043
RUT
Russell 2000
1,105 1,163 1,131
COMPQ
NASDAQ Composite
4,901 5,045 4,995
NIKK
Nikkei 225 Index
18,498 19,203 18,565
DAX
German DAX Composite
10,145 10,683 10,450
VIX
Volatility Index
17.98 25.21 20.95
DXY
U.S. Dollar Index
97.01 99.54 98.22
EURUSD
Euro
1.06 1.10 1.09
USDJPY
Japanese Yen
120.34 123.67 121.69
WTIC
Light Crude Oil Spot Price
34.08 37.97 36.74
NATGAS
Natural Gas Spot Price
1.76 2.01 1.81
GOLD
Gold Spot Price
1,051 1,086 1,060
COPPER
Copper Spot Price
1.99 2.10 2.05
AAPL
Apple Inc.
109 116 110
AMZN
Amazon.com Inc.
641 681 658
GOOGL
Alphabet Inc.
747 782 760
FB
Facebook Inc.
102 107 104
VRX
Valeant Pharmaceuticals, Inc.
85.99 114.13 109.59
KMI
Kinder Morgan Inc.
13.53 17.66 15.84

 

 


Rates, Italy and Oil

Client Talking Points

RATES

Both locally and globally 10YR Yields are higher into the event risk. The UST 10YR is at 2.27% with an immediate-term risk range of 2.13-2.36%; the Swiss 10YR is up +19 basis points month-over-month (off all-time lows) to -0.17%; Italian and German 10YR Yields are up +11 basis points month-over-month.

ITALY

Italy is starting to diverge (bearishly) vs. DAX on a more consistent basis with the MIB index down -0.2% in a muted “green” European tape – keep this on your radar as Italy is a Top 10 GDP economy in the world and heading back into recession in 1H 2016.

OIL

Pre Fed hike = Dollar Up, Oil Down another -1.1% as raising rates into a slow-down is deflationary. Another important signal is that the top-end of my risk range for WTI is lower than the AUG closing lows; with the OVX at 50, that’s super bearish!

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE. Also don't miss today's Fed Day Live at 2:10PM ET with Keith and Darius Dale - CLICK HERE.

Asset Allocation

CASH 74% US EQUITIES 2%
INTL EQUITIES 4% COMMODITIES 0%
FIXED INCOME 12% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
MCD

MCD remains one of our top LONG ideas in the restaurants space. All indications are that all day breakfast is working, bringing back old customers and driving growth of new customers. Customers are pairing both breakfast and lunch items together in the lunch and dinner day, part which is helping drive additional sales.

 

McDonald’s Canada opened its first standalone McCafe this month. The much simplified concept intends to appeal to customers by offering both speed of service and low cost. They intend to be faster than their main competitor Tim Hortons and cheaper than Starbucks, carving out their own niche in the market.

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%+).

 

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. Based on our confidence in the earnings power at play here, we’d use any weakness as an opportunity to buy.

TLT

Implicit in our long TLT/short JNK bias is an expectation for high-yield spreads to continue along their recent trend of widening throughout the YTD.

 

“The U.S. economy is #LateCycle and the probability of a recession commencing by mid-2016 is extremely elevated – both in absolute terms and relative to the belief held by the overwhelming majority of investors and policymakers. Moreover, the risk of a global recession is also great in this scenario.”

 

The economic cycle doing what it always does (i.e. decelerate into a recession before bottoming and then reaccelerating) is reason enough to be bullish on the long bond and bearish on junk bonds, which are accelerating into full-blown crisis mode (the JNK ETF declined another -2% on Friday and is down -4.1% WoW, -5.8% MoM and -12.7% YTD).

Three for the Road

TWEET OF THE DAY

VIDEO (2mins) Whoops! A Look Back At Some of Wall Street’s Worst Predictions This Year https://app.hedgeye.com/insights/48095-whoops-a-look-back-at-some-of-wall-street-s-worst-predictions-this-ye

@KeithMcCullough

QUOTE OF THE DAY

Know the value of time. Snatch, seize, and enjoy every minute of it.

Lord Chesterfield

STAT OF THE DAY

Kohl’s will keep its doors open for more than 170 hours straight from 7am on Thursday, December 17 through 6pm on Christmas Eve, that is up from 100 hours last year.


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