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Today | Q1 2016 Macro Themes Conference Call at 1:00PM ET

We will be hosting our highly-anticipated Quarterly Macro Themes conference call TODAY, 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.

 

Q1 2016 MACRO THEMES OVERVIEW:

 

  • 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.

 

CLICK HERE to watch Keith McCullough walk through this presentation live.

Today | Q1 2016 Macro Themes Conference Call at 1:00PM ET - q1 2016 pic

 

CALL DETAILS

 

  • 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 (1/5) | AMZN 3rd Party, NKE Flyknit Patent

Takeaway: 2015 Amazon 3rd Party Seller Wrap Up. NKE - This is B-I-G, new Nike patent changing the manufacturing paradigm for first time in 40 yrs.

AMZN - Amazon 2015 Seller Wrap Up

(http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2126161)

 

The interesting angle from our vantage point is the influence the AMZN network has on total e-commerce sales. The $76bn in sales the company reported over the past 12 months =  7.6% of ~1 trillion global online dollars, but when you gross up the Third Party selling fees (estimated 20% take rate) into actual retail sales the total sales at retail = $150bn, or 15% of global e-comm sales. And, consumer acceptance of 3rd party sellers just helps AMZN broaden the reach.

 

NKE - This Is B-I-G

(http://pdfaiw.uspto.gov/.aiw?Docid=20150366293&idkey=NONE)

 

Make no mistake...this is B-I-G.

 

A new patent suggests that Nike plans to give users much greater control over the customization of Flyknit sneakers, which is right in line with our contention over the past two years.

 

The implication here is that it will commercialize the ability for Nike to 'Mass Customize' its high-end product at an above-average margin without taking up price.

 

In the end, this changes up the shoe manufacturing paradigm for the first time since Phil Knight created a Futures model 40-years ago. And to be clear, no one is remotely close to where Nike is in this regard. They can catch up, but Nike has been allocating capital to this initiative as far back as 2004 (to it's 'Considered' product line). We wish competitors all the best in catching up without outsized capital spend and subsequent lower margins.

 

Link to full note: CLICK HERE

Retail Callouts (1/5) | AMZN 3rd Party, NKE Flyknit Patent - 1 5 16 chart1

 

ADS, NKE, VFC - Adidas Most Liked Brand on Instagram

(http://vampfootwear.com/what-was-the-most-liked-sneaker-brand-on-instagram-in-2015/)

Retail Callouts (1/5) | AMZN 3rd Party, NKE Flyknit Patent - 1 5 16 chart2

 

WMT - Walmart keeps online payment options open, will accept the MasterPass platform in 2016 for online purchases

(http://www.chainstoreage.com/article/walmart-keeps-online-payment-options-open)

 

RH, ULTA - Gary Friedman, Tory Burch, Ulta’s Mary Dillon Named to NRF’s List of People Shaping Retail

(http://wwd.com/retail-news/specialty-stores/tory-burch-ulta-mary-dillon-nrf-list-shaping-retail-10304285/)

 

TGT - Target executive Janna Potts becomes chief stores officer, continuing CEO Brian Cornell's makeover at the top

(http://www.startribune.com/target-s-hr-chief-janna-potts-becomes-chief-stores-officer/364121521/)

 

CAB, DKS - Firearm Background Checks Reaches Record in December

(http://www.sportsonesource.com/news/spor/spor_article.asp?section=2&Prod=1&id=58875)

 


INSTANT INSIGHT | Central Planning, China, & the Russell 2000

Yesterday was the first day of trading in 2016. It wasn't pretty. In case you missed it, there was a broad selloff in global equity markets.

 

INSTANT INSIGHT | Central Planning, China, & the Russell 2000  - China cartoon 01.05.2015

 

First up on our red data radar screen, China's Shanghai Composite Casino. It dropped as much as 7% on the day. In response, the Communist politburo responded with a full-court press. Here's what Hedgeye CEO Keith McCullough had to say about it in a note to subscribers this morning:

 

"The communists did everything they could to centrally plan China’s markets overnight – stopped the Yuan at 6.516 and the State bought stocks! Lol – that went over as well as it did in AUG didn’t it? #GrowthSlowing and #Deflation remain the gravity point."

 

 

Oh, and let's toss in the Russell 2000... 

 

"Liquidity-traps and US domestics slowing remain great reasons to be out of or underweight small caps – RUT -2.3% yesterday (vs. SPX -1.5%) and is now -14.4% from the all-time #Bubble high we called in July. We're reiterating sell on bounces." 

 

INSTANT INSIGHT | Central Planning, China, & the Russell 2000  - Russell cartoon 12.02.2014

 

We'll conclude with a parting thought to Wall Street consensus which was screaming "buy the dip!" yesterday:

 

"Buying the dip" has only worked in a narrow group of momentum stocks. The rest of the market is crashing. 


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Cartoon of the Day: The Scream

Cartoon of the Day: The Scream - Bull SCREAM 01.06.2015

 

A perfect storm of risks and uncertainties is weighing on global markets.

 

"Yesterday marked the worst Day 1 for US stocks since… drumroll… the last US #Recession started to get discounted by markets (2008)," Hedgeye CEO Keith McCullough wrote in a note to subscribers this morning.

 

No, we're not bullish.

 

 


NKE | This is B-I-G

Takeaway: New FlyKnit tech changes up the shoe manufacturing paradigm for the first time since Phil Knight created a futures model 40yrs ago.

Make no mistake...this is B-I-G.

 

A new patent suggests that Nike plans to give users much greater control over the customization of Flyknit sneakers, which is right in line with our contention over the past two years.

 

The implication here is that it will commercialize the ability for Nike to 'Mass Customize' its high-end product at an above-average margin without taking up price. The FlyKnit manufacturing units outlined below will, we think, be in three different places…

  1. Nike Stores: This will be a Brand experience. Imagine creating product on a kiosk, then swiping a credit card (or using ApplePay), and immediately seeing your shoes being created right in front of you. One shoe might be a size 9, while the other might be a size 9 1/2 -- most people have two different sized feet, but the old paradigm simply did not allow for it. This change is huge -- it's akin to when the stock market went from pricing securities in fractions to pricing in decimal points.
  2. Nike Factories: Imagine a warehouse space that is filled with 100 FlyKnit Units. Users can go online, design shoes, and then receive the customized product overnight just as fast as they'd receive shoes from Zappos -- but they'd be customized. This is one of the factors that gives us confidence that Nike will add $10bn in e-commerce revenue over 5-years at a 70% Gross Margin (vs 46% today).
  3. Wholesale Accounts: Yes, Nike is likely to ultimately put the technology in the hands of its wholesale customers -- but only AFTER it has the technology firmly in place for it's own use. Also, style count would be restricted. Nonetheless, the wholesaler (FL) would pay for the customization technology, the Nike employees that would need to be on hand, the inventory, and all the other wholesale inventory that Nike invariably will stick them with.

 

The irony is that most times we discussed this with investors in recent years, we were met with one of two responses 1) that's too far in the future to matter, or 2) it's probably not happening, because I call the company and they say you're wrong.

 

As for point number 2...Of COURSE they'll say we're wrong! They don't want the retailers to know how serious they are about scaling up this technology, so they downplay it materially.

 

But in the end, this changes up the shoe manufacturing paradigm for the first time since Phil Knight created a Futures model 40-years ago. And to be clear, no one is remotely close to where Nike is in this regard. They can catch up, but Nike has been allocating capital to this initiative as far back as 2004 (to it's 'Considered' product line). We wish competitors all the best in catching up without outsized capital spend and subsequent lower margins.

 

Patent Info 

(http://pdfaiw.uspto.gov/.aiw?Docid=20150366293&idkey=NONE)

NKE  |  This is B-I-G - 1 5 16 chart1

Abstract: Computer based systems and methods for designing (e.g., customization) of consumer products, articles of footwear, knit footwear uppers, and the like. In some embodiments, a user may generate and/or modify footwear designs using a design interface. Additionally or alternatively, the footwear design interface may be configured to simulate the layout and/or operation of a knitting machine to provide the user with the impression of physically designing and/or manufacturing an article of footwear. In other embodiments the system may disallow prospective footwear design changes based on limitations associated with inventory availability and the footwear design characteristics.

 


The Macro Show Replay | January 5, 2016

 


the macro show

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