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Capital Brief | A Storm Is Brewing: Trump Vs. Clinton

Takeaway: Trump Hitting Hard, Clinton Hits the Casinos, Cali Knows How To Party

Capital Brief | A Storm Is Brewing: Trump Vs. Clinton  - capital brief

 

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

TRUMP HITS HARD

 

Capital Brief | A Storm Is Brewing: Trump Vs. Clinton  - trump face2

 

Time to play hard ball. We knew it was coming, we just didn’t know when. Donald Trump doesn’t care about the issue or the context - he’s going ugly, early.  Although the presidential primaries are cooling, they’re still not over as neither candidate is their party’s official nominee yet and they’re already crossing the line – to the extent that one even existed this cycle.

 

Trump seems to keep the surprises coming and one of his allies summed it up perfectly: “What Trump is going to do only Trump knows. Trump is not scripted, he’s not programmed and he’s not handled, but he can read, and he does know the Clintons.”

 

A storm is brewing.

CLINTON HITS THE CASINOS

 

Capital Brief | A Storm Is Brewing: Trump Vs. Clinton  - trump casino

 

“How does anybody lose money running a casino?”

 

Well, people do lose money at casinos, but that’s not what she was referring to as Hillary Clinton follows suit by going after Trump’s past and this time, we’re talking business. Clinton poked fun at the presumptive Republican nominee for his four businesses’ bankruptcies, including his famously failed Atlantic City casinos. Additionally, Clinton shined a light on Trump Mortgages, their role in the housing recession, and Trump’s nerve in rooting for the economy to fail.

CALI KNOWS HOW TO PARTY

 

Capital Brief | A Storm Is Brewing: Trump Vs. Clinton  - beach

 

Californians are registering to vote faster than ever before. More than twice as many voters have registered this year than in the same four-month period in 2012. The growing voter groups identify themselves as Hispanics and Millennials. Both are left-of-center groups, with one favoring Sanders and the other favoring Clinton.

 

CA is too blue for Republicans to be competitive in the fall, but look for a more engaged electorate to impact the Democratic race there in less than two weeks.


Tiffany's Earnings Bomb Wrapped In a Pretty Blue Box | $TIF

Takeaway: "When you call yourself a luxury brand, but your reputation on the Street starts to converge with Kohl’s, you know there’s a problem."

Tiffany's Earnings Bomb Wrapped In a Pretty Blue Box | $TIF - tiffany box

 

Shares of luxury retailer Tiffany (TIF) lost some of their luster today as the company slashed its outlook and reported that results had deteriorated on virtually every line of their P&L. Shares are down 1.6% today.

 

To be clear, Retail analyst Brian McGough has been ahead of the crowd. Since TIF was added to the short side of Investing Ideas, the stock is down -22% while the S&P 500 is up 5.2%.

 

Tiffany's Earnings Bomb Wrapped In a Pretty Blue Box | $TIF - tif v s p

 

Ahead of TIF's results today, here's what our Retail team wrote in a weekend update to Investing Ideas subscribers:

 

"Tiffany (TIF) reports 1Q earnings on Wednesday, May 25th. Looking at recent data points, it seems that this event is more likely to be negative than positive. 

 

  • Last week Macy's reported declining 2 year comp trends. Over the last year, comps for TIF Americas have moved relatively in line with Macy's, and both companies have discussed the negative impact of reduced foreign tourist traffic.
  • Ralph Lauren Corp also noted that sales to foreign tourists were down 25% in the quarter, even working against easier compares from tourism weakness in the quarter last year.
  • TIF CFO Ralph Nicoletti notified the company on May 10th that he would leave on May 20th to take a job with a different company. This comes just 1 month after he stood up in front of analysts at their investor day to lay out the companys financial goals. Generally, executives don’t leave when the team is executing and business is accelerating."

Spot On. 

 

An update following the results...

 

Retail analysts Brian McGough and Alexander Richards minced no words this morning in a note to institutional subscribers:

 

"When you call yourself a luxury brand, but your reputation on the Street starts to converge with Kohl’s, you know there’s a problem... What we are sure of, however, is that this stock is still a short barring a massive correction today that erases a third of TIF’s market cap."

 

In other words, stick with the short here.


McCullough: Stop Whining, Stick With The Process

 

During the live Q&A section of The Macro Show earlier today, Hedgeye CEO Keith McCullough provides a “stick with the process” pep talk for a subscriber worried about his short positions.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.30%
  • SHORT SIGNALS 78.51%

What The Bond Market Tells Us About U.S. Growth (Or The Lack Thereof)

Takeaway: Despite the Fed's talk of rate hikes, we remain the bulls on Long Bonds (TLT).

What The Bond Market Tells Us About U.S. Growth (Or The Lack Thereof) - tlt lowdown

 

"Unfortunately, the bond market isn’t buying into the hope that GDP is +2.5% here in Q2 (we’re still below 1%) – at 1.86% this am the 10yr Yield is signaling at 1.68% is still very much in play ahead of next week’s #EmploymentSlowing report," Hedgeye CEO Keith McCullough wrote in a note sent to subscribers earlier today.

 

Take a look at the 10-year Treasury since the Fed's December "rate hike."

 

What The Bond Market Tells Us About U.S. Growth (Or The Lack Thereof) - 10yr treasury 5 25

 

The flattening of the 10s/2s yield spread to a year-to-date low is another explicitly bearish U.S. growth signal.

 

What The Bond Market Tells Us About U.S. Growth (Or The Lack Thereof) - 10s2s yield spread

 

That's why we remain THE BULLS on Long Bonds (TLT).

 

Stick with it here.


TIF | It’s Time To Man-Up

Takeaway: When you call yourself a luxury brand, but your reputation on the Street starts to converge with Kohl’s, you know there’s a problem.

We don’t know what’s more surreal…Tiffany’s horrible results, its forecast accuracy, its seemingly blasé attitude towards consistently missing forecasts, the arrogance of its management team in addressing its issues, or lastly – it’s multiple. What we are sure of, however, is that this stock is still a short barring a massive correction today that erases a third of TIF’s market cap. Here’s our brief thoughts on each of the aforementioned points…

1) Horrible Results. There’s no ifs ands or buts about this. The company comped down 9% (or -16% on a 2-yr stack), with sales down in every region (excl. Japan easy comp). Margins were off by 256bp, and pre-tax income was down by 29%. Virtually every line of the P&L eroded sequentially in a very material way. But the balance sheet was no better. The days in inventory was 612, which was up 52 (!) days versus last year. To put that into context, TIF has to wait longer to convert a dollar of earnings into cash than Kohl’s, Target, JC Penney, Macy’s, Nordstrom and Wal-Mart -- combined. There are absolutely no redeeming financial characteristics here.

2) Forecast Accuracy. There are too many examples to fit here, but let’s look at the last two annual updates.  On the Jan 2015 holiday update, TIF guided to FY15 $4.15-$4.20 in earnings, which was 15% below expectations at that time.  By year end they reported $3.83.  On this year's holiday update, it gave initial 2016 guidance of ‘minimal growth in earnings’, which just 4 months later is now guided to a mid-single digit decline, assuming back half improvement. Needless to say, we don’t think that back half improvement will come.

3) Complacency in Missing. Is it me, or has management grown seemingly comfortable in missing numbers? It really does not seem to bother them anymore. The only other management team we can think of that is this comfortable missing numbers is Kohl’s.  KSS can’t be the affiliation a once-great company like TIF aspires to keep. But by its actions, you’d never know.

4) Arrogance. Ok…you just missed – AGAIN, guided down for the seventh time in two years, which just happens to be just two weeks after your CFO resigned. And all we get is what was likely a pre-recorded message by IR with no Q&A? TIF has one of the most stand-up IR programs in the business, but let’s face it…when you miss by this magnitude – and this frequency – you get the CEO on the phone, take your lumps, and stand accountable to your business. Heck, when Macy’s dropped a lousy quarter on the Street last November, Terry Lundgren (CEO) jumped on the call for the first time in almost a decade to show his confidence and support.  So…we can’t expect this from Tiffany, but we can from Macy’s?  The question here is whether TIF management really wants this to be a public company.

5) Multiple. First we heard from people that a ‘low 20s’ multiple is fair. Then ‘20x’. Then 17-18x was ‘cheap’. But what’s really the appropriate multiple for a company that is shrinking earnings at a mid-teens rate, and seemingly has no strategy to ever grow again sans a rebound by spending in US Tourist markets? The best we’d give it is a 10% discount to the market – or 15x. We’re well below the Street next year, which we think will be another down year. We’re looking at earnings of $3.25, vs the Street at $4.15. Give our number a 13-14x multiple and we’re looking at a stock about $20 lower than what we’ve got today ($40-$43).

 

TIF | It’s Time To Man-Up - 5 25 2016 TIF SIGMA chart1

 

TIF | It’s Time To Man-Up - 5 25 2016 TIF Earnings chart2

 

TIF | It’s Time To Man-Up - 5 25 2016 TIF CCC chart3

 

TIF | It’s Time To Man-Up - 5 25 2016 TIF Algo chart4


Daily Market Data Dump: Wednesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Wednesday - equity markets 5 25

 

Daily Market Data Dump: Wednesday - sector performance 5 25

 

Daily Market Data Dump: Wednesday - volume 5 25

 

Daily Market Data Dump: Wednesday - rates and spreads 5 25


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