Call Invite | Q1 2016 Macro Themes Conference Call (1/5/16 at 1:00PM ET)

We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Tuesday, January 5th at 1:00PM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.






  • U.S. #Recession?: Industrial activity and corporate profitability are already trending at recessionary levels. Meanwhile, domestic employment, consumption and income growth are all past peak and policy-driven deflationary pressures should persist in perpetuating soft external demand, EM distress, weak import pricing, HY credit risk and further flagging in corporate capex. We’ll contextualize the current macro data and handicap the probability of recession as the late-cycle U.S. economy traverses its steepest GDP base effects of the cycle.
  • #CreditCycle: An extended breakout in corporate credit spreads has preceded recessionary periods in prior cycles, and since we introduced our deflation theme in 2H14, both high yield and investment grade spreads have marched higher off all-time lows in cross-asset volatility and all-time highs in corporate credit outstanding. In effect, we are loudly reiterating our call that the unwind of ZIRP and QE will continue to deflate the easy money credit boom it fabricated in the form of continued recessionary earnings growth as the business cycle gets dangerously long in the tooth.
  • #CurrencyWar: Historically, Fed tightening cycles, #LateCycle slowdowns and #Quad3 outcomes have all been independently been bearish for the USD. As such, our expectation for a continuation of #StrongDollar commodity and asset price deflation appears misguided in the context of our dour fundamental outlook for the U.S. economy. That said, however, currencies cannot be analyzed in isolation and our proprietary analysis of the world’s top-10 economies renders the [dollar-bullish] global monetary policy divergence theme we authored well intact.




  • Toll Free:
  • Toll:
  • Confirmation Number: 13627300
  • Materials: CLICK HERE


As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.


Kind regards,


-The Hedgeye Macro Team

Retail Callouts (12/30): Online Returns, Hong Kong Tourism, KATE, KSS, TGT, M, JCP, JWN

Takeaway: Online returns, another cost for retailers to absorb. Hong Kong traffic slows, little KATE exposure.

KSS, TGT, M, JCP, JWN - Online spending up, returns up = another cost for retailers to absorb



Merchandise returns are expected to increase 8% to $62bil over the months of November and December, and that makes sense. As online spending takes a bigger chunk of the spending pie, returns should follow in step.

With 80% of retailers offering free shipping on returns, that's a tough price tag to swallow for a lot of companies in this space -- especially those with a small average basket. We think that both sides of the fulfillment equation, shipping and returns, for things like apparel/footwear/home décor are headed to 100% free 100% of the time by the end of FY16. That started this holiday as retailers used 'free shipping' promotions as an offensive weapon (TGT, KSS, WSM, etc). Unfortunately, for almost everybody except the bullet-proof content-owners of the world (i.e. Nike), such a move will be dilutive to margins to the tune of bps. Even worse news is that if they don’t play ball, there’s risk to the top line (i.e. if either KSS or JCP opts in to the free shipping game, they both lose).


Of course, if free shipping is offset by more full-price selling, then this would be a saving grace. Unfortunately, we have yet to see any sign of this.  It could also be made up of more impulse purchases in the online format -- but with the exception of Amazon (the King of the impulse purchase), we've actually seen units per transaction go down for most retailers online.


Here is how the margin math works for 4 retailers at various ends of the department store spectrum. JWN gets up to a 1500bps higher gross margin than KSS on a straight on-line sale, 1300bps in the case of a partial return, and a both sit at a -10% margin on a full return. High end, high ticket, and solid content retailers can play online. Otherwise, it's an extremely dilutive channel with even more cost pressure as the free shipping and return threshold move towards $0.

Machine generated alternative text: KSS TGT TGTw/RC M JWN
Normal Sale
Merch Mgn
GP $
Adjusted Margin
$75.00 $125.00 $176.50 $200.00 $300.00
35% 38% 33% 40% 45%
$26.25 $47.50 $58.25 $80.00 $135.00
$7.50 $10.00 $10.00 $13.00 $16.00
$18.75 $37.50 $48.25 $67.00 $119.00
Margin %
25.0% 30.0% 27.3% 33.5% 39.7%
Partial Return
Reversed Profit
Adjusted Margin
$37.50 $62.50 $88.25 $100.00 $150.00
$0.00 $0.00 $10.00 $13.00 $16.00
$13.13 $23.75 $29.12 $40.00 $67.50
$5.63 $13.75 $9.12 $14.00 $35.50
Margin %
15.0% 22.0% 10.3% 14.0% 23.7%
Full Return
Full Return
Merch Profit
Adjusted Margin
$75.00 $125.00 $176.50 $200.00 $300.00
$7.50 $10.00 $20.00 $26.00 $32.00
$0.00 $0.00 $0.00 $0.00 $0.00
-$7.50 -$10.00 -$20.00 -$26.00 -$32.00
Margin %
-10.0% -8.0% -11.3% -13.0% -10.7%

Retail Callouts (12/30): Online Returns, Hong Kong Tourism, KATE, KSS, TGT, M, JCP, JWN - 12 30 2015 Ecomm Math


KATE - Hong Kong traffic slows, KATE little exposure



These Hong Kong tourism numbers are just flat out bad. But as it relates to KATE, the company limited its exposure to the region when it converted its 8 doors into a JV earlier this year. Not that the company was overly exposed to the region in the first place -- at most Hong Kong was a $20mm business for KATE (the combination of Hong Kong, Macau, and Taiwan = $34mm in 2014).

To put it into context, KATE has just 3.5% of the handbag and accessories market compared to COH at 12.5% and KORS at 9%. And the company is just in the beginning stages of growing its global footprint, expanding into new categories (mostly through licenses), and converting its share of voice into a higher share of wallet. Macro matters, but we think there are enough growth vehicles and market share opportunities for KATE to continue to drive the topline, which it has proven it is capable of doing despite serious concerns over the ‘space’.

Retail Callouts (12/30): Online Returns, Hong Kong Tourism, KATE, KSS, TGT, M, JCP, JWN - 12 30 2015 kate chart


Etsy Acknowledges Photo Bug on Mobile App



BBY - Fraudulent holiday returns hurt retailers

Retailers estimate that 3.5 percent of their holiday returns this year will be fraudulent, up slightly from the estimated 3 percent reported last year, according to the NRF.



FDX, UPS - Study: FedEx beats UPS in on-time deliveries

FedEx met holiday delivery guarantees 97.8% of the time in 2015, an improvement from 97.3% in 2014 and 95.4% in 2013.

UPS came in at a 95.5% success rate this year down from 98.1% in 2014 but was better than 93.9% in 2013.



ADS - Adidas CFO says investors are not pushing for Reebok sale, Taylormade decision expected in Q1



GME - GameStop Says We're No RadioShack as Investors' Doubts Increase



AMZN -  Amazon has been operating secret flights carrying thousands of packages in and out of the UK for the past six weeks as it trials setting up its own air freight business


INSTANT INSIGHT | No-Volume "Rallies," #Oil, and the Russell 2000

Takeaway: All is not well out there. Keep your head up.

INSTANT INSIGHT | No-Volume "Rallies," #Oil, and the Russell 2000 - emperors trading volume


You gotta love these no-volume paintings of the year-end tape – yesterday was the 15th up day in the last 37 for the S&P 500.


Here are the facts about the year-end "rally." Total US Equity Market Volume (including dark pool) was down -16% and -18% vs. their 1-month and 1-year averages on yesterday’s +1% SPY day.


Meanwhile, the liquidity trap in small caps (and Russell) remains obvious, looking nothing like the headline level of the S&P 500. Remember, the Russell 2000 is still in correction territory from its June high. 


INSTANT INSIGHT | No-Volume "Rallies," #Oil, and the Russell 2000 - rut


In other crashing markets news, it took Russian equities all of a month to join the Russell's correction club.



INSTANT INSIGHT | No-Volume "Rallies," #Oil, and the Russell 2000 - russia


The story for Russian equities is all about oil. 


This week, Oil has had a textbook crash, bounce, fade move in what so many pundits have hoped for in 2015 – I think they call (ed) it “reflation” – but #Deflation is still winning with WTI -2.7% after failing at the top end of the $34.83-38.29 risk range. 


INSTANT INSIGHT | No-Volume "Rallies," #Oil, and the Russell 2000 - Oil cartoon 12.28.2015

The Macro Show Replay | December 30, 2015


CHART OF THE DAY: The Fed's Illusion Of Growth = Bubbles

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


"... I’ll move along and get back to today’s tape (and apologies in advance for leaving out FANG and more than a few other bubbles), but that’s effectively what the ZIRP created – a galaxy of “unintended consequences”, that were A) intended and B) real.


Creating the illusion of growth that is inflation expectations – i.e. the belief system that prices cannot go down – gave birth to every centrally-planned bubble I’ve ever attacked with live ammo from the short side."


CHART OF THE DAY: The Fed's Illusion Of Growth = Bubbles - 12.30.15 EL chart

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