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3 Must-See Market Calls On HedgeyeTV

Takeaway: There's nothing "transitory" about what's going on right now.

Our omnipotent Fed head Janet Yellen is fond of saying that virtually anything central planners missed (e.g. #Deflation, #GrowthSlowing, global market meltdowns) is merely "transitory." Okay.

 

Here are three videos where Hedgeye CEO Keith McCullough discusses the coming crash in equity markets, our dour U.S. economic outlook and global #GrowthSlowing.

 

1. The Most Important Thing Going On Right Now (12/11/2015)

 

Old Wall completely missed our now prescient Macro theme global #GrowthSlowing. We were espousing the idea 18 months ago. It continues to ravage portfolios today. Here's why.  

 

2. HOW MANY MARKET GENERALS GET SHOT BEFORE THE ARMY CRUMBLES? (8/12/2015)

 

Before you watch this video, note the date. It's just before a major summer selloff in U.S. equity markets. Watch McCullough discuss the myriad market leaders primed for a plunge including Tesla, down -14.5% since then, and Apple, off -12.7%. 

 

3. THE U.S. ECONOMIC OUTLOOK IN 2016? NOT GOOD (12/28/2015)

 

Since making the #GrowthSlowing call, our Macro team has been on the right side of U.S. economic growth. Down, down, down. Meanwhile, so-called "blue-chip" economists and the Fed have are still ratcheting back their expectations. To be clear, we're not getting bullish on the U.S. economy anytime soon. 

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CALL TODAY | THE IRAN FACTOR: Contextualizing Iran's Impact on the Global Energy Industry

TODAY at 1:00 PM EST the Hedgeye Macro Team will host a conference call with former Energy Secretary Spencer Abraham and Senior Energy Analyst Joe McMonigle from Potomac Research Group to discuss the implications of the U.S. and EU lifting sanctions on the Iranian energy industry. A corresponding slide deck will be available approximately 1 hour in advance of the call.

 

As part of Hedgeye’s recent acquisition of Potomac Research Group , we’re excited to introduce both Abraham and McMonigle to Hedgeye subscribers.

 

Watch THE replay below.

 

 

OVERVIEW:

This past weekend the International Atomic Energy Agency (IAEA) certified that Iran met its legal obligations as part of July’s agreement. The US and European Union (EU) lifted all nuclear related sanctions on Iran within hours.

 

In today’s call, we will outline some of the obvious and possibly unforeseen winners and losers after Implementation Day. The goal of the call will be to leverage the Potomac team’s policy experience, expertise, and network to contextualize key upcoming geopolitical catalysts amid a sea of mainstream noise post-deal.   

 

TOPICS OF DISCUSSION:

  • Near Term Surprise?: Iran has the capability to increase production near-term by a larger quantity and at a faster pace than most analysts and policymakers have forecasted.
  • Direction and Policy Tone of Releasing Deliverable Crude: We’ll give an update on the nearly 50MM barrels of crude stored on tankers offshore that is available for immediate delivery and on the move. Iran will move quickly to get into OPEC’s “market share” game (a game that Saudi Arabia will play for the foreseeable future).
  • Updated Iranian Oil Contract:  We’ll discuss the likely outcome of a re-worked Iranian Oil Contract. Iran’s Oil Ministry is planning a conference in London for oil companies and investors on February 22-24 to unveil its new Iran Petroleum Contract. In November, Iran held an introductory briefing for international oil companies on the new oil contract, and the general approach was received quite favorably.
  • Short-Term vs. Long-Term: While initial production capabilities may be significantly understated in the short-run, billions in western investment is needed to bring Iran back to pre-sanctions production levels.   
  • Which companies will participate? European oil companies are now free to do business in Iran. However, while the US lifted nuclear sanctions on Saturday, other US sanctions related to terrorism and human rights remain in effect and prevent US companies from immediately doing business in Iran.
  • Geopolitical Rivalries: A price war with rival, Saudi Arabia will commence. Russia is geopolitically-aligned with Iran, but they are business competitors. Russia was successful in taking many of Iran’s southern European clients. Iran will look to compete for this business at the same time that Europe is looking to diversify its energy needs away from Russia.  

 

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BIOS:

 

Spencer Abraham

Secretary Spencer Abraham serves as Senior Energy Analyst and is Chairman and CEO of The Abraham Group, an international strategic consulting firm focused on the energy sector and based in Washington, DC.

Secretary Abraham is a member of the Board of Directors of Occidental Petroleum, NRG Energy and PBF Energy. Secretary Abraham served as the tenth Secretary of Energy in United States history from 2001-2005 under President Bush. Prior to being named a Cabinet Member, Spencer served as an effective and highly productive U.S. Senator from Michigan for six years.

Secretary Abraham is a member of the Board of Directors of Occidental Petroleum, NRG Energy and PBF Energy.  In addition, he is a frequent commentator on FOX News, CNN and Bloomberg TV as well as a periodic contributor of op-ed articles to the Financial Times, The Wall Street Journal, The Washington Post, The Weekly Standard and other publications.

Secretary Abraham holds a law degree from Harvard University, where he co-founded the Federalist Society, and is a native of East Lansing, Michigan.

 

Joseph McMonigle

Joseph McMonigle serves as a Senior Energy Analyst and is president and co-founder of The Abraham Group LLC.


Mr. McMonigle is the former Vice Chairman of the Paris-based International Energy Agency. He also served concurrently as U.S. Representative to the IEA (2003-2005).

In addition, Mr. McMonigle served as Chief of Staff at the U.S. Department of Energy and also as the American co-chair of the U.S.-China Energy Cooperation Working Group. He is also an attorney and member of the Energy Bar Association as well as the Pennsylvania and District of Columbia bars.

 


REALITY CHECK | How 'Bout That Bounce? A Look At The Market Scoreboard

Takeaway: Stocks haven't bottomed. We reiterate our call to sell on strength.

 

Wacky start to 2016, eh?

 

Jumping right into it in this morning's Early Look, Hedgeye U.S. Macro analyst Christian Drake sums up yesterday's wild market movements from Japan to Europe to U.S.

 

He sums it up in one sentence:

 

"The 2016 equity casino is officially open."

 

Agreed. So, before the perma-bulls get too excited about yesterday's bounce, take a look at year-to-date global equity performance...

 

REALITY CHECK | How 'Bout That Bounce? A Look At The Market Scoreboard - bloomberg ytd

 

Even worse... how about the draw-down from those summer bubble highs?

 

REALITY CHECK | How 'Bout That Bounce? A Look At The Market Scoreboard - bloomberg 6 mon

 

The reality is that volatility is just starting to ramp. We reiterate: Sell on strength...

 

That in mind, here's a quick recap of yesterday's moves and an update on where we think we're going from a note sent to subscribers this morning.

 

"Yesterday the Nikkei rallied on a central bank rumor of more easing then sold off on a contradictory rumor, the SPX futures gapped higher on Draghi pointing to rising downside risks, oil rose on higher inventories and the U.S. equities finished higher alongside a 4th month of contraction in the Philly Fed Index and a rise in rolling jobless claims to their highest level since April of last year. 

 

This morning’s catalyst is Chinese officials vowing to “look after” stock investors. Manic price action in markets and reactionary policy responses out of central banks are not outcroppings of improving fundamentals. GrowthSlowing remains the call and we remain sellers of strength."

 

... Meanwhile in Europe

 

"While European equities are bouncing today, nothing has changed with our fundamental outlook of #EuropeSlowing. We got our first touch of reality on the inflation outlook from the ECB in ECB governing council member Ewald Nowotny saying there are risks inflation could turn negative due to low oil prices in H1’16.

 

Also as no surprise, Eurozone GDP and CPI forecasts for the next three years were largely all guided down by a group of external analysts (we expect similar results from the ECB’s staff projections at the March meeting). Finally, preliminary January PMIs for the Eurozone all fell month-over-month. Manufacturing (52.3 vs 53.2 prior), Services (53.6 vs 54.2 prior), and Composite (53.5 vs 54.3 prior).

 

Got #GrowthSlowing?"

 

Keep you head up out there.


investing ideas

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HedgeyeRetail (1/22) | TIF - Don't Fear the Repo, NKE/Jordan

Takeaway: TIF Share Repurchase - 'Announcing' ≠ Lower Share Count.  Jordan's at ROST, Jumpman Ain't Dead.

TIF - Don't Fear the Reap-o

Share Repurchase -- 'Announcing' Lower Share Count

(http://investor.tiffany.com/releasedetail.cfm?ReleaseID=951229)

 

We're absolutely not concerned about being short TIF into the company re-upping its share repo authorization. For starters, 1) we're only talking $500mm, which is about 6% of the current market cap. This program is a drop in the bucket. 2) Next, just because a company announces a repo, it does not mean it will actually execute on it. 3) Lastly and most importantly, history does not lie. Over the past decade, TIF spent $1.1bn on share repo, and yet the share count only came down by 6.6mm, or 4.8%.  The implied repo price per share comes out to $170, and yet the stock only poked its head above $100 fewer than a dozen times, and never broke $110. But the average implied repo price was $170?

 

The fact is that some companies, like GPS (which we don't like) use repurchases as an offensive weapon -- cutting it share count in half over a decade. TIF is not one of those companies -- as it basically uses the repo program as a way to offset dilution from options and other non-cash compensation.

 

NKE, ROST - Jumpman Ain't Dead

 

People are finding every way imaginable to jump on the 'Jordan is Done' bandwagon, and this report is the latest. The picture shows two pairs of Jordans on the rack. We're hard pressed to find them at any other stores. The reality is that this happens all the time, even for high end product. The shoes are likely damaged, or more likely, the boxes are damaged. That's usually the factor that results in Marquee shoes ending up in off price channels. Keep in mind that 'sneakerheads' value the box almost as much as they value the shoe. All it takes is a palette of 100 pairs of shoes to get wet, or the corner of the boxes crushed, and they are deemed unsellable in full-price channels. If there's anything unusual about this it is that they did not end up in Nike outlets. Our sense is that the retailer who deflected these kicks to Ross Stores will be getting an angry phone call from someone in Beaverton. 

HedgeyeRetail (1/22)  |  TIF - Don't Fear the Repo, NKE/Jordan - 1 22 2016 chart1

(http://solecollector.com/news/air-jordan-11-72-10-ross/?utm_campaign=solecollector%2B08%2B2015&utm_source=twitter&utm_medium=social)

 

WMT - NLRB Judge declares Wal-Mart violated federal law when it disciplined employees after 2013 strike -- must rehire 16 former employees with backpay

(http://www.wsj.com/articles/worker-strikes-against-wal-mart-in-2013-were-lawful-nlrb-judge-says-1453422505)

 

BID - Sotheby's Board of Directors eliminates the Company’s $0.10 dividend effective immediately, and allocate the capital instead to repurchase shares.

(http://www.sec.gov/Archives/edgar/data/823094/000082309416000072/a8-k_bidxprexannouncexjanx.htm)

 

M - Macy’s new omnichannel strategy, “Pick to the Last Unit”, lets stores act as “warehouses” to utilize the full assortment of owned inventory

(http://www.retailingtoday.com/article/macys-picks-rfid-support-omnichannel-shopping)

 

WSM, RH Baby & Child - Pottery Barn Kids is unveiling its first nursery collection

(http://www.retailingtoday.com/article/pottery-barn-kids-has-babies-brain)

 

CAB - Cabela's trying to sell credit card business, responsible for 30% of revenue, prior to selling to company

(http://nypost.com/2016/01/21/cabelas-wants-to-sell-credit-card-biz-before-it-puts-up-entire-company/)

 

Richemont acquires remaining 40% of luxury watch and jewelry maker Roger Dubuis

(http://www.letemps.ch/economie/2016/01/21/richemont-rachete-100-roger-dubuis)

 

DG - Dollar General Names Michael M. Calbert as Non-Executive Chairman of the Board to Replace Rick Dreiling

(http://investor.shareholder.com/dollar/releasedetail.cfm?ReleaseID=951263)


Sell on Strength

Client Talking Points

#CREDITCRACKS

As spreads begin to widen on a record amount of corporate credit, the rating agencies are beginning to sound the alarm, on a lag to real-time quotes and credit default swaps. When the CDS of an IG credit is trading >+1000, that’s a red flag. Both S&P and Moody’s have been vocal the last two days on the dour outlook for commodity producing companies and countries as one of our 3 big macro themes, the #creditcycle, gets rolling.

#EQUITYCASINO

Yesterday the Nikkei rallied on a central bank rumor of more easing then sold off on a contradictory rumor, the SPX futures gapped higher on Draghi pointing to rising downside risks, oil rose on higher inventories and the U.S. equities finished higher alongside a 4th month of contraction in the Philly Fed Index and a rise in rolling jobless claims to their highest level since April of last year. This morning’s catalyst is Chinese officials vowing to “look after” stock investors. Manic price action in markets and reactionary policy responses out of central banks are not outcroppings of improving fundamentals. GrowthSlowing remains the call and we remain sellers of strength.  

EUROZONE

While European equities are bouncing today, nothing has changed with our fundamental outlook of #EuropeSlowing. We got our first touch of reality on the inflation outlook from the ECB in ECB governing council member Ewald Nowotny saying there are risks inflation could turn negative due to low oil prices in H1’16. Also as no surprise, Eurozone GDP and CPI forecasts for the next three years were largely all guided down by a group of external analysts (we expect similar results from the ECB’s staff projections at the March meeting). Finally, preliminary January PMIs for the Eurozone all fell month-over-month. Manufacturing (52.3 vs 53.2 prior), Services (53.6 vs 54.2 prior), and Composite (53.5 vs 54.3 prior). Got growth slowing?

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 20% INTL CURRENCIES 13%

Top Long Ideas

Company Ticker Sector Duration
XLU

We added Utilities (XLU) on the long-side last Friday as the market continued to pummel everything we haven’t liked (high debt, high beta, and small-cap stocks leveraged to inflation expectations) – Utility stocks are low-beta, slow-growth bond proxies which is why they are by far the best relative performer year-to-date.

 

XLU is outperforming the S&P 500 by +7% and remains flat on the year. Friday’s large swath of data echoed what we have been saying for a while now on the deflationary risk of an industrial recession.

GIS

GIS led a $3 million funding round for kale chip maker Rhythm Superfoods. Although this is not a big deal and will most likely never make a strong impact to top or bottom line, it marks a changing in the tide for management thinking. They are making a distinct effort to delve deeper into the natural and organic category which will help them a lot in the long run.

 

Although the overall market has been atrocious year to date, down roughly -8%, GIS with its low beta, big cap, style factors has held in, down just -5%. We continue to like General Mills as a LONG, especially during the tumultuous times in the market.

TLT

With growth continuing to slow and volatility breaking out to the upside across asset classes, we expect the unwinding of a record amount of corporate credit leverage to continue. We’d put that deleveraging in the third or fourth inning currently. Credit spreads will continue to widen. That's why you're long TLT (and short JNK).   

Three for the Road

TWEET OF THE DAY

SPAIN: "surges" +3.2% on Draghi Cowbell, but is still in crash mode, -26.5% from 2015 high

@KeithMcCullough

QUOTE OF THE DAY

Every failure brings with it the seed of an equivalent success.

Napoleon Hill

STAT OF THE DAY

Apple received $1 billion from Google to keep its search bar on the iPhone, according to a transcript of court proceedings from Oracle Corp.’s copyright lawsuit against Google.


CHART OF THE DAY: Why Volatility Won't Settle Down Anytime Soon | $VIX

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye U.S. Macro analyst Christian Drake. Click here to learn more.

 

"... In the Chart of the Day below we plot daily price moves >1% in the S&P500 by year.  The bubble size corresponds to the average VIX level for the period. 

 

2014 marked the peak in policy induced complacency (implicit in the transition from explicitly “lower for longer” to “data dependence” is elevated uncertainty & the removal of a structural policy anchor on volatility) and with the Fed now attempting divergent policy action into a slowdown, volatility won’t be re-interred anytime soon." 

 

CHART OF THE DAY: Why Volatility Won't Settle Down Anytime Soon | $VIX - EL SnP


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