The Week Ahead

The Economic Data calendar for the week of the 20th of June through the 24th of June is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead - 06.17.16 Macro Week Ahead

Adding LMT: Removing NUS

Takeaway: We are removing NuSkin and adding Lockheed Martin to Investing Ideas today.

As we head into the weekend, we’re making a few changes in Investing Ideas. We’re removing NuSkin (NUS) from the short side as a point of process. “I don't like letting a loss run,” Hedgeye CEO Keith McCullough wrote today. “Winners stay.”


On that note, we’re adding Lockheed Martin (LMT) to the long side. Hedgeye Potomac Senior Defense Policy Advisor LtGen Emerson "Emo" Gardner USMC Ret. will send out a full report outlining our high-conviction long thesis next week.


In a recent note to Institutional Subscribers, General Gardner explained:


"Like the House, the Senate is moving quickly to increase investment in big ticket programs in the FY17 Pentagon spending bill. With a bipartisan vote of 30-1, the Senate Appropriations Committee released its FY17 defense spending bill report and it is very good news for defense prime contractors.


Like the House, the Senate bill "finds" $15B to fund most of the services' unfunded priority lists for more fighters, more ships and higher readiness levels that were not requested by the President. Unlike the House, the Senate "finds" the money from within the President's request itself rather than by underfunding the OCO budget."


Adding LMT: Removing NUS - lockheed

YELP | Covering Short

Takeaway: Not worth staying short w/o a clear catalyst against increasing take-out risk. But YELP is either a 2016 take-out, or a 2017 blow-up


  1. ALGORITHIM STUNT: We suspect the 1Q beat was largely driven by the algorithm change to its CPC product, and that benefit probably came in the form of a lift in CPC bid rates since that is easiest lever for YELP to pull (see video context).  We suspect YELP’s better ad “budget fulfillment” will exacerbate churn since those accts are now spending more, which means ROI is likely to decline without marked improvement in conversion.  But most of those accts were going to churn off anyway, so it doesn’t really matter over the next three quarters.  That said, the algorithim stunt is a net benefit that will carry through 2016.
  2. LAA GIVEAWAY: the 1Q16 surge in new accounts (LAAs) was driven by a “meaningful percentage” of lower ARPU self-serve accounts through free advertising promotions.  The first question is what does meaningful percentage mean, the second is what would LAA growth have been without those self-serve accts? Even with the sell-serve promotion, YELP couldn't produce new account growth in excess of the rate that it had been onboarded reps over the past 3 quarters.  But more importantly, a growing mix of self-serve means YELP is replacing its churning accts at a lower ARPU.  In turn, YELP needs even more new account growth to offset its churn, which the algo change will likely exacerbate.   
  3. RACE TO BE ACQUIRED: We question whether mgmt has fully thought through the ramifications of the algo stunt + LAA giveaway given its history of short-sighted moves, especially with a new CFO in place.  The counter to that is that they do understand, and are laser focused on being acquired.  We suspect it’s the latter, and YELP is doing whatever it can today to market itself as an M&A target.  But if YELP isn’t acquired by year end, the story is going to get much uglier in 2017 given that YELP will be replacing its churning accounts at a lower ARPU (self-serve).  That combination could lead to a considerable deceleration in revenue growth, if not declining revenues in 2017.  In short, we see YELP as either a 2016 take-out, or a 2017 blow-up.
  4. NOT WORTH IT: The setup is moving against us and we don’t see the point of staying short without a hard catalyst in sight since we suspect that take-out risk may be increasing.  It’s possible that YELP could produce upside to both 2Q & 3Q Local Advertising estimates given that the ARPU tailwind from the algo stunt will carry through 2016, and self-serve may continue padding the LAA metric as well.  On the M&A front, if YELP produces 1-2 more quarters of decent results; its story may change from structurally broken to rebounding company vs. a stock with a sub $2B EV that is trading at less than 3x sales.  We're not suggesting a take-out is probable, but it's possible if YELP shows signs of life.  We’ll be looking to revisit the short later this year.  


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


Hesham Shaaban, CFA
Managing Director




YELP | Covering Short - YELP   2Q 3Q Local Scen Analysis

YELP | Covering Short - YELP   New Acct vs. Sales 1Q16 v3

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Retail in the Spotlight on Today's The Macro Show

Takeaway: Watch Retail Sector Head Brian McGough hosting Hedgeye’s The Macro Show this morning.

Retail Sector Head Brian McGough hosted Hedgeye’s The Macro Show this morning.




Notable Tickers: KSS, M, NKE, RL, FL, LULU, RH, AMZN, SHLD


Key topics include:

-May retail sales breakdown, and the ecommerce/AMZN impact.

-Updated industry SIGMA overview - sales, inventory, gross margin analysis.

-Recent negative consumer credit signals and retailers with high credit exposure.

-Callouts on key retail stocks. 

HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street

Takeaway: Fear in the marketplace this week took the VIX into the 20s and drove futures and options volume to their highest levels all quarter.

Weekly Activity Wrap Up

With the VIX rising into the 20s this week, fear in the marketplace drove a wave of exchange traded volume particularly in derivatives. 24.9 million futures contracts per day traded through CME and ICE this week, the highest recorded weekly volume this quarter. That brings the 2Q16TD futures average daily volume (ADV) to 19.5 million, +11% higher than 2Q15. Options also saw their highest weekly volume so far this quarter, coming in at 17.9 million contracts per day, which brings the 2Q16TD ADV to 15.4 million, back in line with the year-ago quarter. Finally, cash equity volume grew week-over-week to 7.1 billion, bringing the 2Q16TD ADV to 7.0 billion, +10% higher than one year ago.


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon16


U.S. Cash Equity Detail

U.S. cash equities trading came in at 7.1 billion shares per day this week, bringing the 2Q16TD ADV to 7.0 billion. That marks +10% Y/Y growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 25% share of second-quarter volume, which is +91 bps higher Y/Y, while NASDAQ is taking a 17% share, -134 bps lower than one year ago.


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon2


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon3


U.S. Options Detail

U.S. options activity came in at a 17.9 million ADV this week, bringing the 2Q16TD average to 15.4 million, in line with the year-ago quarter. In the market share battle amongst venues, NYSE/ICE's 17% share of 2Q16TD volume is +24 bps higher than one year ago. Additionally, NASDAQ's 22% share is +13 bps higher year over year. BATS has also been taking share from the competing exchanges, up to an 11% share from 10% a year ago. Meanwhile, CBOE's 27% market share of 2Q16TD is down -62 bps Y/Y, although it has been rising in recent weeks. Finally, ISE/Deutsche's 14% share is -166 bps lower than 2Q15.


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon4


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon5


U.S. Futures Detail

19.4 million futures contracts per day traded through CME Group this week, the firm's highest level all quarter, bringing the 2Q16TD ADV to 14.9 million, +12% higher Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 109.7 million CME contracts pending, good for +20% growth over the 91.3 million pending at the end of 4Q15, although a contraction from the previous week's +27%.


Contracts traded through ICE came in at 5.5 million per day this week, breaking last week's record for the highest weekly volume all quarter and bringing the 2Q16TD ADV to 4.6 million, a +7% Y/Y expansion. ICE open interest this week tallied 64.8 million contracts, a +2% expansion versus the 63.7 million contracts open at the end of 4Q15, although a contraction from the previous week's +7%.


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon6 2


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon8


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon7


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon9 


Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon10


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon11


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon12


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon13


HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon14

HEDGEYE Exchange Tracker | Fear and Loathing on Wall Street - XMon15



Please let us know of any questions,


Jonathan Casteleyn, CFA, CMT 




 Joshua Steiner, CFA




Patrick Staudt, CFA

Capital Brief: Donald Under Duress? ... & Rubio Reconsiders

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


Capital Brief: Donald Under Duress? ... & Rubio Reconsiders - JT   Potomac under 1 mb


I'm not the smartest fellow in the world, but I can sure pick smart colleagues.”



After the IN primary six short weeks ago, Donald Trump was atop some national polls and riding a high wave of Republican endorsements on his way to unifying the party, while Hillary Clinton was left to battle an insurgent and struggling to unite her own party.  After two tumultuous weeks of picking fights with everyone in his path, Trump has found himself alone and losing momentum faster than ever.


Republicans have had a knee jerk reactions to criticizing the nominee early and often in the past, but the frequency with which they’re doing it now is different and more problematic. With less than a month before the convention, he hasn’t won endorsements from many of his former primary opponents, has yet to put together a core finance team and is creating tension with the RNC - his only (and largest) organizational back up for the next five months. Does this guy really want to win?


Our nation’s gun laws have many Democrats up in arms and now Trump - who throughout his campaign has expressed his opposition to gun control - has been prompted to meet with the National Rifle Association over the issue in the wake of the Orlando massacre. Trump has backed a no-buy list for FBI watch list members and the NRA has opposed the measure concerned that Americans wrongfully placed on list were being stripped of their constitutional rights to due process.


Tensions have emerged on Capitol Hill after a 15-hour filibuster by Senate Democrats has forced Republicans to hold votes on two separate gun measures - with PA Senator Pat Toomey being one of few Republicans willing to cross party lines on the issue.


When Senator Marco Rubio launched his presidential campaign, he made the bold promise of winning the White House or bust - but a lot has changed since then especially with Trump at the top of the ticket. Holding onto the Senate was always going to be a challenge for Republicans given the number of seats they had to defend and now with the political winds changing, Senate Majority Leader Mitch McConnell and his colleagues feel Rubio is their best hope to keep FL in the red column.


As the Democratic frontrunner, Rep. Patrick Murphy has been the beneficiary of the party’s growth in registration and fundraising in the state making him the early favorite…if Rubio doesn’t run. Rubio has exactly one week to decide if he’ll throw his hat in the ring.