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A Troubling Global Macro Check-Up With Hedgeye CEO Keith McCullough

Takeaway: No matter how they spin it, permabulls (around the world) are getting crushed.

A Troubling Global Macro Check-Up With Hedgeye CEO Keith McCullough - World Market No 12.16.14

 

Today's U.S. jobs report number was flat-out ugly. Anybody long the S&P 500, Dow, Nasdaq, or Russell 2000 knows that. (Click here to watch Hedgeye CEO Keith McCullough on Fox Business explaining "why the jobs market peaked last year" ahead of consensus.) There's been nowhere to hide for long-only equity investors. Outside these fifty states, stock markets from China to Germany have been falling precipitously

 

Here's a look at (crashing) markets around the globe:

 

no "amore" here...

 

Germany is crashing too...

 

 

Over in Asia...

The Nikkei looks awful despite the BOJ's best efforts to huff hot air into its flagging economy.

 

 

Chinese parlor games continue...

Shanghai Composite Casino investors rushing for the exit...

 

 

Amidst the volatility and turmoil, we're finding plenty of trades for investors to take advantage of:

 

Oil

It's been an excellent short on short-term pops...

 

 

that barbarous relic...

Long Gold was a good call throughout 2016 but it looks overbought here...

 

 

THE LONG BOND

Perhaps our best call has been remaining bullish on the Long Bond (TLT). The 10-year Treasury yield continues to fall despite the Fed's December rate hike on our U.S. #GrowthSlowing Macro theme.

 

 

Stick with the process. Consensus missed all this. We didn't.


HedgeyeRetail (2/5) | DECK Cutting Store Anchor, BBBY Driving Traffic W/ Pretzels

Takeaway: DECK no near term turnaround, but cutting store anchor. New Bed Bath traffic driver - pretzels.

DECK - No near-term turnaround, but cutting store anchor

 

We never really understood the DECK store opening strategy. Now the company is hiring a 3rd party to close 15% of its current portfolio.

 

If you look at the store opening cadence since 2006 when the company had just 2 stores and fast forward to where we are today at 142 doors, and what that's subsequently done for returns as capex as a % of sales went from 1% as UGG relied on its wholesale distro to 5% at the height of the sq. ft. investment, it tells a pretty compelling negative story.

 

The question now is, as costs roll off and the company abandons its store strategy, will we see margins re-inflate and asset turns re-accelerate as the fixed asset base consolidates. The top line has been underwhelming for 3 straight quarters and doesn’t give us confidence in the immediacy of a turnaround, especially in an economy that is #latecycle.

 

We wouldn't touch this with a 10 foot pole on the long side today, with inventories up 26% on 1% sales growth. But it’s a name over the course of 6-9 months that might be worth taking a look at as working capital gets cleaned up, and assets are rationalized.

 

HedgeyeRetail (2/5) | DECK Cutting Store Anchor, BBBY Driving Traffic W/ Pretzels - 2 5 2016 Chart1

 

HedgeyeRetail (2/5) | DECK Cutting Store Anchor, BBBY Driving Traffic W/ Pretzels - 2 5 2016 chart2

 

BBBY - This Bed Bath promo email is hilarious. 

BBBY sent out this promo email yesterday, and it featured a bag of pretzels. That's it, a bag of pretzels. It's comical to think that a $2 discount on a bag of Pretzel Crisps can drive foot traffic. 'In Store Only'!

 

HedgeyeRetail (2/5) | DECK Cutting Store Anchor, BBBY Driving Traffic W/ Pretzels - 2 5 2016 chart3

 

JCP - JCPenney pursues sale of home office campus

(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=2136090)

 

DKS - Sports Authority to Take Steps Toward a Bankruptcy Filing

(http://www.bloomberg.com/news/articles/2016-02-04/sports-authority-said-to-take-steps-toward-a-bankruptcy-filing)

 

MAT - Mattel interested in possible merger --  has requested financial information about Mayborn, owner of prominent baby product manufacturer Tommee Tippee

(http://news.sky.com/story/1636597/mattel-makes-play-for-tommee-tippee-owner)

 

Big-box home décor retailer At Home has added four more locations averaging almost 100,000 sq. ft. each to its growing store portfolio

(http://www.chainstoreage.com/article/home-dcor-retailer-continues-expand)

 

JCP - JCPenney announced that it is pursuing sale of Home Office campus in TX in effort to reduce outstanding debt

(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=2136090)

 

Kate Hudson's fashion athletic brand Fabletics opening 2,000 sq.ft. store in Mall of America

(http://www.chainstoreage.com/article/fabletics-continues-offline-push)

  

Report says successful malls in India are changing strategy by reducing the size of anchor stores from ~70,000 sw. ft. to ~25,000 sq. ft. to bring in more international brands

(http://www.livemint.com/Industry/MDVIOuBc4OXQ2Byhk9NA6I/Malls-renovate-as-ecommerce-players-draw-away-footfalls-Re.html)

 


FLASHBACK | McCullough: Non-Farm Payrolls Peaked Last Year

Takeaway: Jobs are the latest of #LateCycle indicators. NFP peaked in rate of change terms in Febraury 2015.

Click The video below to watch

 

This past November Hedgeye CEO Keith McCullough nicknamed the supposedly strong October jobs number the, "Where’s Waldo jobs report." His message was clear: So what.

 

McCullough's point was that jobs are the latest of #LateCycle indicators and that NFP had already peaked in rate of change terms in Febraury 2015. On a related note, consensus missed today's jobs number because they don't understand our thesis. 

 

Watch the video above for more of his analysis. And feel free to show the chart below of NFP rolling over to anyone claiming the last few months of jobs reports have been "good" ...

 

Click to enlarge


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LNKD | Guidance = Recession

Takeaway: Guidance implies a recession or is an egregious sandbag. Either way, there may not be much left to play for this year in either direction.

KEY POINTS

  1. 4Q15 = REALLY MESSY:  LNKD produced a relatively small top-line beat on what appeared to be a soft 4Q15 guide when they issued it. During the call, mgmt introduced a lot noise through the announced sunset of its Lead Accelerator product and what sounded/read as its plan to stop disclosing LCS accounts.  Mgmt also stated that Talent Solutions add-ons and renewals both declined on a y/y basis; both factors are reflected in LNKD’s ARPA, which suggests the selling environment is deteriorating.
  2. GUIDANCE = RECESSION: LNKD’s Talent Solutions guidance breakdown is calling for a sharp deceleration in organic revenue growth from 32% in 4Q15 to ~20% in 2016.  That’s basically implying a recession since its guidance translates to sharply declining ARPA and/or net new LCS Account growth; at a magnitude that is well in excess of anything it's ever reported for either of those metrics (see analysis below).  More likely than not, this is an egregiously sandbagged guidance release given how sudden the deceleration is that's baked into it.  
  3. NOT SURE WHAT'S LEFT TO PLAY FOR: On either the short or long side.  The sandbag/recession guide should give LNKD at least a couple quarters of breathing room before another short opportunity might emerge.  But even if LNKD winds up producing upside over the next two prints, we're not sure anyone is really going to chase that with this print in the rear view mirror and macro concerns looming.  That said, we're staying on the sidelines for now.

 

LNKD | Guidance = Recession - LNKD   ARPA vs. JOLTS 4Q15

LNKD | Guidance = Recession - LNKD   TS 2016 Guid Scen 1

 

 

Let us know if you have any questions or would like to discuss in more detail.

 

Hesham Shaaban, CFA


@HedgeyeInternet 


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  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.96 1.81 1.87
SPX
S&P 500
1,855 1,950 1,915
RUT
Russell 2000
985 1,039 1,014
COMPQ
NASDAQ Composite
4,417 4,649 4,509
NIKK
Nikkei 225 Index
16,464 17,606 17,044
DAX
German DAX Composite
9,307 9,691 9,393
VIX
Volatility Index
20.02 27.45 21.84
USD
U.S. Dollar Index
96.19 98.66 96.49
EURUSD
Euro
1.07 1.12 1.11
USDJPY
Japanese Yen
116.38 121.11 116.74
WTIC
Light Crude Oil Spot Price
28.73 34.49 31.69
NATGAS
Natural Gas Spot Price
1.98 2.28 1.98
GOLD
Gold Spot Price
1,110 1,160 1,156
COPPER
Copper Spot Price
1.97 2.13 2.12
AAPL
Apple Inc.
91 99 96
AMZN
Amazon.com Inc.
514 579 536
GOOGL
Alphabet Inc.
705 747 730
MCD
McDonald's Inc.
118 125 120
XLU
Utilities Select Sector SPDR
45.01 47.93 46.42
VRX
VAleant Pharma Inc.
85.55 99.56 96.94


The Macro Show Replay | February 5, 2016

 

 


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