A #LateCycle Reality Check Hits Disney, Macy's, China, Italy, etc...

Takeaway: Recent stumbles in Disney shares, Italy's bank-heavy FTSE MIB index, and China's Hang Seng index are prime examples of #GrowthSlowing.

A #LateCycle Reality Check Hits Disney, Macy's, China, Italy, etc... - late cycle cartoon 10.08.2015


It's getting tougher each day for deniers of #LateCycle reality.


"I wonder if Disney missing for the 1st time in 5yrs has anything to do with #TheCycle (it continues to slow)," Hedgeye CEO Keith McCullough wrote in a note to subscribers this morning.


Even chart chasers can digest the massive rally in Disney (DIS) shares followed by the abrupt flatlining. Note: DIS is down more than -10% from it's August 2015 peak.



By the way...


It's going to be a rough #LateCycle reality check for Macy's (M) investors this morning. The retailer printed lackluster earnings eerily reminiscent of the last cycle's rollover. (It has also already nosedived from its July 2015 peak – it's down almost -50% since then.)



It's happening around the world...


Check out European economic data:



And Italy's banking-heavy FTSE MIB leads the losers today. 


Thanks NIRP!



(For more, read the FT's piece about the German regulator who called NIRP a "seeping poison." Or Spain's 50-year Long Bond issuance as growth continues to slow.)



Rouding out the morning's #GrowthSlowing flops is China's Hang Seng:



Meanwhile, there's always a bull market somewhere...


CHART OF THE DAY: A Look At The Peak In S&P 500 P/E

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.


"... Unless we’re going to go all-in #bubble multiple speak (Bernstein slapped a $1000 price target on AMZN yesterday), as you can see here in our Chart of The Day, forward SP500 P/E multiples already peaked (right on time) last year too."


CHART OF THE DAY: A Look At The Peak In S&P 500 P/E - 05.11.16 EL Chart

Cartoon of the Day: Dead On Arrival

Cartoon of the Day: Dead On Arrival - earnings season cartoon 05.10.2016


A brief update on earnings season:

  1. 441 of 500 S&P 500 companies have reported their Q1 2016 numbers
  2. Aggregate SALES growth is DOWN -2.4% year-over-year
  3. Aggregate EARNINGS growth is DOWN -8.9% year-over-year
  4. Ex-Energy (EPS -109% y/y), Financials have EARNINGS DOWN -14.3% year-over-year
  5. Ex-Energy, Technology has EARNINGS DOWN -8.4% year-over-year 

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Trump & Bernie's War On Math

Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email


Trump & Bernie's War On Math - trump 55


Donald Trump is under fire for waffling on the pillars of his economic plans. We think he has a bigger numbers problem - and his difficult task of winning over key demographics (particularly Hispanics) may have just gotten harder. Yes, his unfavorables are at a historic high for a major party nominee; and yes, his misguided attempts to win over those groups (think: TacoGate 2016) have not done him any favors.


But that may be nothing compared to the impending "Hispanic backlash."  Trump is backed up against a big border wall for a number of reasons: he has a net favorability among Latinos of negative 78% (while Hillary Clinton is at +29%). Since 1980, no Republican has won the White House without locking down at least 30% of the Hispanic vote, and Hispanic registration is up in a number of key states - CA, CO, NV and FL - to name a few. 


Trump & Bernie's War On Math - bernie sanders another


The Democratic underdog is fighting over big numbers again, and this time they're coming at him from the left. The left-leaning Urban Institute did the math on Sanders' "Medicare for all" program estimating it would increase federal spending by $32 trillion over 10 years - yes, that's trillion with a T


Sanders had previously estimated the cost to be closer to a measly $13.8 trillion. But West Virginians don't seem too concerned. Despite Sanders' long list of policy proposals with no clear way to pay for them, he is likely to pick off another win in WVA today and the Democratic contest will just keep dragging on. 


Tax Notes recently suggested the Obama Administration could use the regulatory process to close the so-called "carried interest loophole." Treasury officials responded in an eerily similar tone it used during the run-up to recently-released inversion guidance, saying closing the loophole was a top priority and that Treasury is "continuing to explore its existing authority...but the department cannot eliminate the carried interest tax benefit by itself." 


Given the heat they are taking on their unilateral action on inversions, we would be surprised to see Treasury take on another battle.  But given Clinton, Sanders and Trump have all criticized the carried interest provision, the rhetoric on this issue will likely heat up just in time for the summer.

A Nasty Day For Debt Collector PRA Group (Another Solid Short Call By Josh Steiner) $PRAA

Takeaway: PRA's weak quarter is only the beginning of it's downturn, says Financials analyst Josh Steiner. We still see "significant downside."

A Nasty Day For Debt Collector PRA Group (Another Solid Short Call By Josh Steiner) $PRAA - praa


Today hasn’t exactly been a happy day for investors long debt collector PRA Group (PRAA). After the company missed first quarter earnings estimates by a wide margin, shares plummeted over -18%. Ugly? Of course. But this barely scratches the surface of PRAA’s underlying issues.


To be clear, our Financials analyst Josh Steiner has been advising our customers to short PRAA. Since adding it to his team's Best Ideas Short list in November, shares are down almost 30%.


Here’s an excerpt from an update on PRAA via an institutional research note written by Steiner:


“PRA Group (PRAA) reported 1Q 2016 earnings after the close last night. The company missed revenue expectations by -6%, reporting $225 million versus expectations for $240 million, and adjusted EPS of $0.85 fell -11% short of expectations for $0.96. GAAP EPS, meanwhile, was $0.69, 28% below expectations.”


It’s also important to note, as Steiner continues, “Operating margin has fallen by a massive -770 bps from 39.2% in 1Q15 to 31.5% in 1Q16.”


Another highlight that caught our Financials team’s attention, since the broader issue is on the SEC’s radar, was the widening disparity between PRAA’s GAAP and non-GAAP earnings:


The last 9 months have seen GAAP earnings of $1.91, while non-GAAP earnings have been $2.87 (50% higher!). We think the buyside and sell-side may be slowly waking up to the fact that GAAP numbers are the better gauge of how PRA is performing. It's also remarkable how in the last 9 quarters, not once have Non-GAAP earnings been lower than GAAP earnings.”


Other important issues to watch include further deterioration in major company metrics, regulatory scrutiny, allowance charges and IRS-related tax troubles. In other words…


Not good.


Bottom Line: “Given the numerous aforementioned headwinds, we believe this quarter’s broad deterioration in PRAA’s metrics is only the beginning of the company’s downturn. We continue to see significant downside to PRAA’s stock price.”


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Reality Bites Retail: Most Bankruptcies Since 2009

Takeaway: The Aeropostale bankruptcy marks the sixth of the year -- putting the YTD count ahead of the full-year tally for each of the past 6 years.

Editor's Note: Below is a brief excerpt from an institutional research note written recently by Hedgeye Retail analyst Brian McGough. To access our institutional research email


Reality Bites Retail: Most Bankruptcies Since 2009 - chapter 11 bankruptcy



In case you were hiding under a rock, Aeropostale finally did a favor for both the teen shopping crowd and the investment community alike when it filed Chapter 11 this week. There are two major takeaways from where we sit…

Click charts to enlarge


Reality Bites Retail: Most Bankruptcies Since 2009 - retail bankruptcy 1

  1. First off, let this serve as a reminder as to how long these apparel retailers can sustain a state of sub-mediocrity without going under. While not super high margin businesses, the only real capital needs are in inventory -- as capex is generally low, and property values are almost all off-balance sheet. In other words, by the time a company looks like it is headed to file, it might actually have another full economic cycle left in it. That's Aeropostale.
  2. Secondly, this event marks the sixth major retail bankruptcy of the year -- putting the year-to-date count ahead of the full-year Ch 11 tally for each of the past six years. If we annualize the current run-rate, we'll be on track to see more bankruptcy events than any year in two generations -- including the Great Recession. In fairness, as someone astutely pointed out to us last month, Chapter 11 filings are historically weighted toward the start of the fiscal year. That, in fact, is true. But we're still likely to see a few more by the end of the year. Regardless of any nuances, the most notable point to us is that we're seeing such a significant uptick in business failures when we're so late in this economic cycle.  


Reality Bites Retail: Most Bankruptcies Since 2009 - retail bankruptcy 2

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