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Washington on Wall Street: Super Tuesday Preview with JT Taylor and Daryl Jones


Potomac Research Group's Chief Political Strategist JT Taylor joins Hedgeye Director of Research Daryl Jones for a Super Tuesday preview. The Republican establishment hopes that Rubio or Cruz can capture some delegates in the face of Donald Trump's seemingly insurmountable leads in nearly every Super Tuesday state. Meanwhile, Hillary Clinton seeks to build on her momentum from a big South Carolina win to effectively seal the deal on the Democratic side.

BREAKING: SEC Investigation, The Valeant Implosion Continues (We Warned You) | $VRX

Takeaway: Our analysts think Valeant Pharmaceuticals' shares still have 70% downside.

BREAKING: SEC Investigation, The Valeant Implosion Continues (We Warned You) | $VRX - Ackman cartoon 10.26.2015


Shares of the drugmaker Valeant Pharmaceuticals (VRX) have tumbled -18% today after it was reported that the company is under investigation by the U.S. Securities and Exchange Commission. Our Healthcare analysts Tom Tobin and Andrew Freedman have long warned about Valeant's unsustainable business model was supported by an acquisition spree that aggressively valued those assets:


“Valeant is operating what we believe is an unsustainable business model of serial acquisitions and underinvestment, fueled by debt, that will continue to lead to deterioration in the ongoing business.” (Hedgeye, 7/2014)


Below we have unlocked our Healthcare team's original research along with a few updates and the most recent research laying out why VRX shares are only worth $20:



Below is a smattering of Freedman's follow up via Twitter: 





BREAKING: SEC Investigation, The Valeant Implosion Continues (We Warned You) | $VRX - Ackman cartoon 11.09.2015

The Fed's In Deep Doo-Doo If Recession Comes

Takeaway: Tightening credit conditions and economic history don't augur well for the Fed and its "ability to soften the blow."

Editor's Note: Watch out if the U.S. economy stalls ... the Fed has very little monetary policy "cushion" left should the economy take a turn for the worse. That's one of the key takeaways from a recent institutional research report written by our Financials analysts Josh Steiner and Jonathan Casteleyn. On a related note, our Macro team has been highlighting the increasing likelihood that the U.S. slips into a recession sometime in the next one to three quarters. Below is a brief excerpt. To get full research access email sales@hedgeye.com.


The Fed's In Deep Doo-Doo If Recession Comes - bear cartoon 01.26.2016


Excerpt from Research Report: 


"... Perhaps of equal interest is the fact that the Fed has historically had an enormous policy cushion in response to recessions. The table below shows that since 1969, the Fed has eased by an average of 750 bps in response to every recession. The last two cycles have seen the Fed ease by 560 bps and 520 bps. The challenge this time around is that the Fed's current policy cushion is 36 bps.


To summarize, credit conditions are tightening, which has historically ushered in a recession, and the Fed is short by around 5 percentage points on its ability to soften the blow."


Click to enlarge

The Fed's In Deep Doo-Doo If Recession Comes - policy cushion

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JT Taylor: Is Clinton Gaining Momentum... Behind The Rise Of Donald Trump

Takeaway: What to watch on the election 2016 campaign trail.

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



JT Taylor: Is Clinton Gaining Momentum... Behind The Rise Of Donald Trump - hillary clinton


Hillary Clinton trounced Bernie Sanders in Saturday's primary, winning by nearly 48 points, and sweeping the African-American vote by a 5:1 margin. Her campaign made an all-out attempt to run up the score, deploying her family across the state days after Sanders packed up and left. 


Clinton bet that the added momentum will help her in states with a large African-American population -- and that the opportunity costs of not spending time last week in, say, Colorado or Minnesota will be minimal. She can't afford any risk of looking like she's taking any votes, especially African-Americans' for granted -- especially given that she needs to shore up perceptions of her authenticity and that their support is so vital for her candidacy.


Bottom line: Her decision to remain in SC throughout last week was both a defensive move and a show of strength. 



JT Taylor: Is Clinton Gaining Momentum... Behind The Rise Of Donald Trump - its alive


We wrote months ago that Trump's rise was due in large part to the establishment media and their refusal to hold his feet to the fire -- and we dubbed him the media's Trumpkenstein. Here's what we wrote:


"For most of this election season, Donald Trump has represented high ratings and big get interviews for media outlets. The Republican debates have been some of the highest-rated programs on cable networks as a result of Trump's participation. Instead of regular programming, CNN and other cable news stations provide free air time to Trump and cover his speeches [and ubiquitous dial-ins] live. Yes, he said crazy things, but it was 'good television' and ratings."


Ahem. So we find it incredibly ironic that that same establishment media is now implying that the Republican establishment is responsible for Trump's rise, and faulting them for not intervening to thwart his candidacy.


C'mon. Plenty of blame to go around on this one... 

A Brief Update On Our Foot Locker Call | $FL

Editor's Note: Below is a brief update and recap on our Foot Locker call. For additional analysis or other related research from our Retail team led by Brian McGough please ping sales@hedgeye.com.


A Brief Update On Our Foot Locker Call | $FL - footlocker


Following Wednesday’s updated Best Short Idea presentation by Hedgeye Retail analyst Brian McGough, Foot Locker (FL) posted decent to good numbers.


However, most metrics look sequentially worse including FL’s margin of EPS upside relative to expectations. The flow through in profitability is less than half of where it trended 3 and 4 quarters ago. And from here, compares get increasingly tougher.


Since McGough added FL as a Best Ideas Short, the company is down -12% versus -4% for the S&P 500:

A Brief Update On Our Foot Locker Call | $FL - footlocker 22


Comp trends were disappointing in February, at a low-single digit rate month-to-date even though:


  1. There was a sequential uptick in Nike/Jordan launches this month versus last, and;
  2. Feb 2015 was disappointing – so it faced an easy comp. i.e. there’s an increasing bifurcation between Nike’s solid release schedule and FL results. 


That’s bad.


The steady sequential decline in e-commerce is unsettling to say the least. Given base levels of industry growth in the US in conjunction with our estimate of how Nike channel distribution will change, we think that Nike’s US Wholesale revenue base will shrink by $1 billion (retail equivalent) by 2020.


The only way FL wins in that context is to become a wholly-owned subsidiary of Nike. That obviously won’t happen. FL is likely to miss six out of eight quarters from here without a significant downward guide, not to mention the re-valuation that will come with it – we expect this to be a slow but steady bleed.


Bottom line: We think FL will struggle to generate $4 in EPS over the next 2-3 years, suggesting 25%+ downside risk from here.


Click here to watch a brief video summarizing FL's earnings:


To read more analysis on Foot Locker or other research from our Retail team ping sales@hedgeye.com.

McCullough: Listen Closely to the Bond Market’s Message


In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough explains why we “remain right and contrarian” on the bond market and why investors should be buying Utilities (XLU), Gold (GLD) and Long Bonds (TLT). If you like this excerpt, you’ll love The Macro Show.

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Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.