"The Fed is S&P 500 dependent, not data dependent," Hedgeye CEO Keith McCullough wrote recently.
Takeaway: We are adding Hanes Brands to Investing Ideas today.
Editor's Note: Below is a brief summary of our high-conviction short thesis written by Hedgeye CEO Keith McCullough in Real-Time Alerts earlier today. Please note that our Retail team will send out a full report next week.
I haven't seen this many great short selling opportunities, well, since the beginning of Q3 2015 when we first went bearish on the SP500 and The Cycle.
On the Institutional Research side of our business (our biggest business by far) we added Hanes Brands (HBI) to our short list this week. Per Brian McGough:
"We don’t like the Brands, don’t like Management, and don’t like the Company, but that alone is no reason to short a Stock.
What is, however, is the fact that we think that earnings and margins are at peak. We’re 7% below consensus this year, -20% in ’17, -30% in ‘18, and -40% by year 3. Some argue that stock might seem cheapish today at a mid-teens multiple and 5% FCF Yield – though we really don’t follow that logic. Once the dust clears from the acquisitions, special charges, and cotton prices normalize from the 7-year low, we think we’ll be looking at lower multiples on lower earnings and cash flow."
Hedgeye CEO Keith McCullough crystalizes an enormous risk facing the U.S. stock market right now in this brief excerpt from The Macro Show today.
***If you like this clip, you'll love The Macro Show.
Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.
The WI race is drawing comparisons to the NH primary in that the presidential candidates have descended upon it as their main focus in the absence of other primaries on April 5 . Like NH, the Badger State holds the potential to upend the race, with Cruz and Sanders currently leading their fields. An underdog victory in an important swing state would give Sanders momentum going into NY, and Cruz a much needed jolt against Trump - who has stumbled this week with his comments on criminalizing abortion, the Geneva Conventions as well as his defense of his embattled campaign manager. A win by Cruz would cast further doubt on Trump's ability to win enough delegates to clinch the nomination before the convention.
In a situation reminiscent of Hillary Clinton's catch-up efforts in 2008, Bernie Sanders is pushing hard for more debates ahead of the WI and NY primaries. Clinton's camp is resisting, in large part because agreeing to more debates concedes to how popular and influential Sanders is within the Party at a time when she wants to pivot her focus to the general election. Ted Cruz has repeatedly called for additional debates, hoping to weaken Trump before WI, while Trump has shirked off more debates claiming that 12 is more than enough...and we don't disagree with the Donald this time around.
CA is on the verge of becoming the first state to raise their minimum wage to $15 an hour, potentially becoming another tool in the Sanders campaign workbench as raising the minimum wage is one of his core campaign promises. The state with the most delegates will likely serve as Trump's "judgment day" primary, and on the Dems' side a Sander's win would be an embarrassing episode for Clinton. Both candidates have a groundswell of support in the Golden State, and this issue will allow them to take the race local - not only to rally support for the candidacy, but also for the #FightFor15.
Takeaway: There's no conviction in recent "rallies" but as growth slows Utilities will continue to outperform.
Editor's Note: Below is a brief transcript and a couple of charts from The Macro Show today featuring commentary from Hedgeye CEO Keith McCullough.
“For those of you looking for confirmation about the stock market being up, don’t look at volume. Go ahead. Ignore it. Nothing to see here.
Sure, the market was up yesterday but it’s up on fumes. This is what we’ve seen before in recent rallies. There’s no volume, no inflows to mutual funds, and the only thing lifting the markets are the bots and hedge funds doing their best not to go out of business. That’s why you see a lot of high short interest stock going up on literally nothing at this point."
"Let’s talk about sectors. There are plenty of sectors you don’t want to be long here as growth continues to slow in the coming quarters. Look at Consumer Staples (XLP), the best performing sector yesterday. That’s surely a signal that the economy is going to rip roar to the upside, right?
Uh, no. Not at all."
"In fact, the only sector you want to be long on any pullbacks is our favorite sector, Utilities (XLU). It’s been the best performing sector this year on growth slowing concerns while Financials (XLF), our favorite sector on the short side, have been getting absolutely hammered.”
Takeaway: Equity markets in Europe and Japan continue to crash on our Macro team's #GrowthSlowing and #LowerForLonger (rates) calls.
A quick look outside the manic, easy-money driven markets in the U.S. illustrates the bearish trends still plaguing equity markets (i.e. our #GrowthSlowing and #LowerForLonger themes). Once we lap the month-end markup in the U.S., the reality that corporate profits nosedived some -10.5% year-over-year and realization that over the coming quarters GDP growth bumps up against the toughest comps of the cycle will start to sink in.
No. Neither of these realities is bullish for stocks.
Take a look at how European and Japanese equities are grappling with #GrowthSlowing and #LowerForLonger via analysis from Hedgeye CEO Keith McCullough:
"Europe was flat out ugly for Equity Bulls too – Spain leads losers this morning -1.5% and is in a race with Italian stocks for biggest draw-down from 2015 highs (both -25%!); they’re totally not into the Yellen Dollar Devaluation (Euro Up) thing; #GrowthSlowing in Europe remains our fundamental call there."
"Unlike the slow-volume squeeze U.S. equity beta had off those crashy FEB lows, Japan really sucked wind throughout Q1. The Nikkei closed down for 3 straight days to end the quarter right back in crash mode (-20% since the bubble highs in Global Equities of July 2015) – we remain bearish (short) Japan and one of its ETF manufacturers (DXJ and WETF)."
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