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Why We’re Bearish On U.S. Housing

 

In this excerpt from The Macro Show this morning, Hedgeye analyst Josh Steiner discusses the reasons behind our decision to go from bullish to bearish on the U.S. housing market. He’s joined by U.S. Macro analyst Christian Drake.


Cartoon of the Day: Volcker To Yellen

Cartoon of the Day: Volcker To Yellen  - Fed Chairmen cartoon 02.03.2016

 

Each Fed chair rises to the occasion.


JT Taylor: 4 Thoughts Heading Into the New Hampshire Primary

Takeaway: New Hampshire and Iowa are very different animals.

Below is a brief excerpt from Potomac Research Group Senior Analyst JT Taylor's Morning Bullets sent to institutional clients each morning. 

 

JT Taylor: 4 Thoughts Heading Into the New Hampshire Primary - bernie

 

"NEW HAMPSHIRE IS A VERY DIFFERENT ANIMAL, BUT SOME TAKEAWAYS FROM THE IOWA CAUCUS GIVE US CLUES FOR HOW THE NATION'S FIRST PRIMARY MAY PLAY OUT:

 

The Trump spectacle draws large crowds, but he was hurt by an inability to transfer that into committed voters. Cruz by contrast won "the Iowa way" with a new twist, marrying a heavy emphasis on door-to-door campaigning with cutting-edge digital targeting and demographic modeling. Evangelicals made up 64% of Iowa Republicans, and a large portion of the remaining voters classified themselves as very conservative. NH is one of the least religious states in the country and has a large block of libertarian and moderate voters. Fertile ground for Trump and Rubio -- or one of the governors. Not Cruz.

A Trump Ceiling?

Entrance and exit polls from Iowa indicated that higher turnout, especially among new voters, didn't translate into a big Trump boost -- it seems his presence in the race brought out an even share of fans and detractors. This may be indicative of a Trump ceiling among Republican primary voters -- a notion that would be cemented with a similar result in the Granite state. Trump needs a ground game to complement his message in order to win here and beyond.


Bush got burned. Badly

His campaign and Super PAC spent a combined $14.1 million in Iowa on ads alone -- that works out to more than $2,800 per vote for a dismal sixth-place finish. In NH, he'll be hard-pressed to convince voters that he's a better establishment standard-bearer than Rubio, who he just lost to by 20 points...


Sanders is in for the long haul

His campaign announced this week that it had pulled in $20 million in donations in January alone, averaging $27 apiece -- something he repeatedly highlighted in his not-quite-concession speech Monday night. Did we mention that he raised an additional $3 million after that speech? He's vowed to take the fight to Hillary "all the way to the convention."


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Why Long Bond Yields Continue To Decline (Despite Fed Hike Rates)

Takeaway: Wait a second... Didn't the Fed hike interest rates?

A lot of people are scratching their heads wondering what the heck is going on with the 10-year Treasury. We're not. In case you missed it, the 10-year yield hit 1.83% earlier today. This ... after declining from 2.27% when the Fed hiked interest rates in December

 

Why Long Bond Yields Continue To Decline (Despite Fed Hike Rates) - rate hike

 

There's a simple explanation.

 

Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"I don’t want you getting piggy with the 10yr UST at 1.83% - it’s been a great start to the year (long the Long Bond), so book some gains after this epic move towards the all-time lows (in yields) – “expensive” Long Bond gets more expensive as A) Deflation persists B) Growth Slows and C) German 10yr 0.29%, JGB 10yr 0.06%, and Swiss 10yr -0.33%."

 

Our Macro call on this has been spot on. That's why we've been bullish on Long Bonds since we added it to Investing Ideas in August of 2014. Here's how it's performed since then:

 

Why Long Bond Yields Continue To Decline (Despite Fed Hike Rates) - tlt performance

 

We're sticking with Long Bonds. It's been the best contrarian Macro call around especially based on where we think the U.S. economy is headed: #Recession.

 


REALITY CHECK: A Quick 2016 Scorecard For Permabulls

Takeaway: Red remains the primary color in U.S. equity markets.

REALITY CHECK: A Quick 2016 Scorecard For Permabulls - bull drinking 01.08.2016

 

Here's a quick look at the year-to-date market scorecard for all the chest-pumping permabulls calling a bottom last week.

 

 

For the record, the only sector that we've liked all year on the equity side continues to work out:

Utilities (XLU)

 

Here's why, from a note Hedgeye CEO Keith McCullough sent to subscribers this morning: 

 

"From a S&P Sector Style perspective, the Best Idea in our Q1 Macro Themes deck remains playing our rates call via long Utilities (XLU +0.4% yest to +6.4% YTD) and short Financials (XLF -2.8% yest to -11.8% YTD)"

 

More confirmation of our XLU long call today. In a tough tape for the equity markets today, it's the only sector (other than Materials) that's up. XLU is +1.2% versus S&P 500 down -1.2%.

 

Oh and did we mention that we're predicting a 20% or more stock market correction?

 

 

Stick with us. We're just getting started. 


HedgeyeRetail (2/3) | LULU - Chip Away No More

Takeaway: The soap opera continues at LULU as Chip reasserts himself. We're not betting on management.

LULU - Chip Reasserts Himself. We're not betting on management.

(http://www.businesswire.com/news/home/20160202006701/en/)

 

The soap opera continues at LULU.

 

First Chip traded his chairman title/power for the appointment of new CEO Laurent Potdevin. That led to Wilson being effectively neutered on the Board and to him selling half his stock to Advent in August of '14.

 

Then Chip announced that he would be stepping down from the BOD in February and put the processes in motion to sell his remaining stake in June of 2015.

 

Rather than walk away into the sunset, sell his stake now worth $1.25bn and focus on his family's new project Kit & Ace, which Chip talked about in an appearance on Bloomberg in mid-December. He is now asserting his right (per the 2014 agreement with Advent) to appoint a new member to the BOD. He chose LULU's former CIO (2010-2014), Kathryn Henry, to be his advocate. And couldn’t help but deliver a few pot shots about the company's current corporate governance.

 

So what would we do with the stock?

 

This company has at a lot of levers to pull especially on the GM side, and has lost 600bps in product margin over the past 4 years (see chart below).  The top line looks relatively healthy, accelerating on a 2yr basis throughout 2015 against easy compares last year. But, now LULU starts to comp that in 2016. The US market is all but tapped out in terms of unit growth, with the company focusing on expanding existing footprint. International results have varied, with winners in Asia mixed with unenthusiastic 'on track' remarks on Europe.

 

At 28x next year's number we'd argue that the GM improvement is all but priced in and we have to assume that the company continues to comp in the mid to high single digits in perpetuity. That leaves little room for an operational hiccup from an unproven management team. A bet we're not willing to make. We like it as a short.

 

Our only concern is that with 27% of the float held short, so do a lot of other people. Still, that doesn't change the mismatch between the long-term growth trajectory and elevated valuation. 

HedgeyeRetail (2/3)  |  LULU - Chip Away No More - 2 3 2016 chart1 

 

AMZN - Amazon to open up to 400 bookstores.

(http://www.wsj.com/articles/amazon-plans-hundreds-of-brick-and-mortar-bookstores-mall-ceo-says-1454449475)

 

LOW - Lowe's will acquire RONA for $2.3bn to accelerate growth strategy in Canada

(http://www.prnewswire.com/news-releases/lowes-to-acquire-rona-creating-canadas-leading-home-improvement-retailer-300214396.html)

 

COLM - Columbia it will realign Montrail as a sub-brand of Columbia -- beginning 2017, Columbia's trail running apparel, footwear and accessories will be badged Columbia Montrail

(http://investor.columbia.com/releasedetail.cfm?ReleaseID=952917)

 

COH - Coach to open 20,000 Sq. Ft. flagship store at 685 Fifth Avenue in NYC -- Stuart Weitzman will also open a store at this location

(http://phx.corporate-ir.net/phoenix.zhtml?c=122587&p=irol-newsArticle&ID=2134829)

  

WMT - Walmart Canada expands online grocery pickup service to 12 greater Toronto stores

(http://www.newswire.ca/news-releases/walmart-canada-keeps-gta-customers-warm-and-dry-expands-online-grocery-pickup-service-to-12-greater-toronto-area-stores-567481341.html)

 

AdiBok - Mark King, President of Adidas North America, debuted his own podcast this week

(https://soundcloud.com/extraordinaryhappens)

 

Hooker Furniture Completes Acquisition of Home Meridian International -- company will double its sales volume and positions it to become one of the top 5 U.S. furniture market sources

(http://investors.hookerfurniture.com/releasedetail.cfm?ReleaseID=952837)

 

TGT - Brad Maiorino, Target senior VP and chief information security officer, joins cybersecurity board

(http://www.retailingtoday.com/article/target-exec-joins-cybersecurity-board)

 

Toys “R” Us looking to big banks for restructuring as finances improve

(http://www.retailingtoday.com/article/toys-r-us-enlists-big-banks-finances-improve)

 

TGT - CVS Health opens first pharmacy locations within Target stores and will will convert 1,672 Target pharmacies in next 6-8 months

(http://www.prnewswire.com/news-releases/cvs-health-introduces-first-cvs-pharmacy-locations-within-target-stores-300214037.html)

 

Hancock Fabrics files for bankruptcy, considers putting 250 retail sewing and crafting stores up for sale

(http://www.retailingtoday.com/article/hancock-fabrics-files-bankruptcy-considers-sale-company)


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