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Ignoring real-time data is not part of our process and we would suggest that you make sure it does not become part of yours.


The constant pace of the posting on the topic from one certain academic is enough to tell you that the inflation-deflation debate is here to stay.  What is not here to stay, it seems, is basic common sense.  All the accolades in the world (deserved or not) are merely noise when simple logic is cast to one side for the sake of an unyielding loyalty to one idea.


Yes, our favorite – and most dogmatic – correspondent from the Ivory Tower is apparently dissatisfied with the focus on commodity prices as an indication of inflation.  Today, Professor Krugman has enlightened us to the fact that “commodity prices are a global phenomenon, driven by world demand” and that the “United States doesn’t drive these things”.  Looking at the math instead of paying heed to dogma, we have seen on a daily basis over the last number of months that the inverse correlation between the dollar and commodity prices has been extremely high during the recent melt up in commodity prices.  The prices of oil, copper, cotton, and other key commodities are denominated in dollars.  When Federal Reserve policy debases the dollar, the prices of commodities denominated in dollars go up.  Other factors also impact commodity prices, of course, but to ignore the real-time prices and the fact that commodities are denominate in dollars is – in my view – ridiculous. 


We are maintaining our stance that the Federal Reserve’s policy of Quantitative Guessing will result in inflation.  QG=i.  The world is not waiting hear the selection-biased views of academics on this.  The World Bank, Dai Xianglong, Chairman of China’s National Council for Social Security Fund, and German Finance Minister Wolfgang Schäuble have all recently expressed strong reservations about QE2 and its impact on the dollar and global asset bubbles.


Since the Bernanke speech in Jackson Hole in August, the eight commodities and two commodity indices shown in the chart below have gained an average of 40% in price and 26% if you exclude the 170% move in Cotton.  No, it’s not “core” inflation; it’s “real” inflation that reflects a significant portion of what every US consumer consumes.  More importantly, it’s a regressive tax on consumer spending, especially for the middle class.  So who is going to pay the inflation tax?  A segment on NPR Radio yesterday morning outlined the hindrance that rising gas prices poses for the U.S. economy.  One commentator on the segment quantified a $10 rise in oil prices as a $200 million tax on the economy per day.


As it stands, the earnings and guidance from corporate America are not reflecting a slowdown in demand from the inflation tax or any significant pressure to margins.  The past earnings season has been one of the strongest in recent memory as measured by Bloomberg’s forward guidance index.  The index looks at the comparison between the companies forecast and the consensus analyst estimate.  The trend of companies reporting positive guidance versus negative guidance has accelerated for four straight weeks.


In the upcoming quarters, something will need to give way and it will likely not be The Conscience of a Liberal.  Ironically, The Conscience will be in New Haven today and will likely be hearing from The Conscience of a Hedgeye!


Howard Penney

Managing Director


THE CONSCIENCE OF A HEDGEYE - jackson hole inflation



India’s Two Big Problems

Conclusion: We expect inflation to continue to be a major headwind for the Indian economy and we see further tightening on the horizon. In addition, the potential for destabilizing withdrawals of foreign investment has breached its 2007 highs, which suggest Indian equities could experience major declines should global markets come under pressure.


Position: Bearish on Indian Equities


In line with our call that 1) global growth is slowing 2) inflation is accelerating and 3) global interconnected risk remains near all-time highs, we’ve been making a series of contrarian calls of late – none larger than our recent decision to short U.S. Equities (SPY) and go long the U.S. dollar (UUP). We don’t wake up every day trying to be perpetually bullish or bearish; rather our proprietary risk management models are signaling to us deterioration in the economic fundamentals of several key countries globally.


India is one of the countries we’ve had our eye on of late. While we tip our hats to India’s long-term TAIL outlook for growth and development, we are becoming increasingly cognizant of the two near-to-intermediate-term risks to Indian equities. Those risks are: 

  1. The potential for accelerating inflation and further tightening; and
  2. The potential for destabilizing withdrawals of foreign investment 

On the inflation front, there are several factors at play here. India, like many other countries in the developing world has been struggling to contain inflation, which is currently running at more than double the target rate (+8.6% YoY in September). Accordingly, India’s central bank has hiked its benchmark interest rates six times this year to the current 6.25% (RBI Repo Rate) and 5.25% (RBI Reverse Repo Rate).


Central bank governor Duvvuri Subbarao said at a recent press conference that India probably won’t raise interest rates in the immediate future barring any shocks, which suggests they are comfortable with letting their actions take effect for now. Further, they expect inflation to decelerate to a more tolerable +5% YoY rate by March 2011.


We are much less comfortable with that projection, given the recent global speculation brought on by QE2 and Bernanke’s dare for investors to chase yield. That dare has been and is continuing to be an issue for the Indian economy, given the recent price moves in many commodities globally. Since Heli-Ben called his shot in Jackson Hole on 8/27, the Reuters CRB Commodities Index is up nearly 20%. Even more astonishing are the price moves in many agricultural commodities over the same period: Soybeans (+26%); Rice (+32%); Corn (+36%); Oats (+41%); and Sugar (+65%). If commodity prices stay at/near current levels, we don’t see any reason for India’s benchmark WPI index to decelerate in any meaningful way.


India’s Two Big Problems - 1


Despite India having  roughly 816 million citizens who live on less than $2/day at PPP – with food being their largest expense – India’s central bank has shifted its stance on the margin towards supporting Indian manufactures and investors by choosing not to support further rupee strength via additional rate hikes (up  4.7% vs. the U.S. dollar YTD). Rather, it has chosen to embark on its own version of QE2, buying back 83.5 billion rupees of government bonds on 11/4 to help ease a cash shortage among Indian banks – an action not taken since September 2009.


In recent weeks, Indian banks have been borrowing anywhere between 500 billion and 1.2 trillion rupees per day in overnight loans from the central bank to meet record demand from investors for loans, as well as new capital requirements. Bank lending has accelerated to +21% YoY through October, buoyed in part by investor demand for state asset sales (i.e. Coal India Ltd’s recent IPO) and Indian banks and corporates’ demand for dollar-denominated borrowing, which are at ten year highs, according to Bloomberg data. On 11/2, the RBI asked commercial banks to increase provisions for home loans of 7.5 million rupees and above and for floating rate mortgages as well.


All told, the cash shortage has dampened Indian lenders’ ability to fuel burgeoning speculative demand for Indian assets; as such, Money Supply (M3) has fallen to a near-five-year low (+15% YoY) in the two weeks through mid-October:


India’s Two Big Problems - 2


What irks our Hedgeye’s is the RBI’s recent decision to aid the speculation by helping banks raise cash in their recently-announced version of QE2-lite. We understand the India is a robust and growing economy with a great deal of internal demand; nevertheless, we see the RBI’s recent actions and tone shift as a major potential hindrance in their bout with inflation. As such, we expect a) inflation to continue to dampen Indian corporate profits as both COGS and borrowing costs remain elevated (rates on three-month commercial paper issued by Indian companies have nearly doubled this year to 8.16%) and b) further monetary policy tightening on the horizon once the RBI grows uncomfortable with the growth rate of speculative lending.


On the global speculation front, the yield-chasing frenzy inspired by dovish monetary policy in the developed world (namely the U.S. and the E.U.) and QE2 speculation has prompted foreign investors to buy a total of $35.5 billion of Indian equities and bonds YTD – up 93% YoY vs. the full-year 2009 total of $18.4 billion. In recent months we’ve seen India get more comfortable with foreign participation in their capital markets, as evidenced by Prime Minsiter Manmohan Singh’s recent decision to increase the overseas investment cap on Indian government and corporate bonds by $5 billion to $30 billion each. In light of such favorability, foreign holdings of India’s corporate and government debt has more than doubled in 2010 to a record $17.4 billion as of September.


Two things here are cause for alarm in our opinion: 1) foreign investor participation is volatile and can be withdrawn in a heartbeat and 2) India itself may eventually clamp down on yield-chasing capital seeking to enter the country as it did in October 2007 – just three months before the prior peak in the Sensex. Keep in mind that foreign investors withdrew $14.84 billion from Indian equities in 2008, which contributed to the 2008-09 crash in the Sensex. At $15.62 billion through September of this year, foreign investors have plowed capital back into India equities, which suggests a substantial amount of damage could be done should they feel compelled to withdraw for any reason.


As we mentioned at the outset of this report, interconnected global risk continues to remain quite elevated and global risk aversion will surely lead to a major correction in the Sensex, which is trading near its all-time high. To that point, since Bernanke dared the world to lever up and take on risk in Jackson Hole on 8/27, the Sensex is up +16.3% and has an inverse correlation of 0.91 to the U.S. dollar. Should the dollar catch a meaningful bid over the near-to-intermediate term, which we believe it will for a variety of reasons (not the least of which are accelerating sovereign debt concerns out of Europe’s periphery), expect to see a major correction in Indian equities.


Darius Dale



India’s Two Big Problems - 3


Conclusion:  There is no near-term upside for Burger King Franchisees as the brand is being hit with both weak top-line trends and higher beef costs.  The recent sale of the company has more than angered a number of key franchisees.  Guess what, they want out!


TAST’s Burger King trends decelerated during the third quarter, with same-store sales coming in -3.2% versus -6.1% a year ago.  On a two-year average basis, this implies a 160 bp slowdown from the prior quarter.  And, comparable sales growth continued to be weak in October, -3.5% (relatively flat on a two-year average basis with 3Q10 level). 


Making matters worse for the Burger King franchisee, beef costs were up 17.5% YOY.  Profitability was also hurt during the quarter by the concept’s promotional offerings.  Beef usage was actually up 9.1% YOY due to the increased mix of lower priced burgers.  Given the company’s outlook for comp sales to be down 3 to 4% in FY10 (implies -1 to -5% in 4Q10) and commodity costs at Burger King to be up 4 to 5% in FY10 and up about 3% FY11, there does not seem to be any near-term upside. 


The only seemingly good news for the brand stemmed from Burger King’s breakfast daypart as sales have improved following the concept’s new breakfast offering, supported by advertising.  The results are still early as the new breakfast promotion only launched in mid-September, but breakfast sales have grown to 16 to 17% of sales from 13 to 14%.  The stronger breakfast trends, however, have been offset by continued weakness during lunch and dinner.  That being said, TAST management stated that it remains cautious with respect to a near-term turnaround at Burger King, but they are “hopeful” that they are nearing the bottom of the cycle.



Management highlighted the recent ownership and management changes at Burger King Corporation and said they are awaiting the brand’s new marketing plans.  Specifically, TAST management said they expect Burger King’s new management should be able to revitalize the brand. 



Although the last comment seems to express some level of confidence in Burger King’s new management and the future success of the brand, what followed was less than bullish commentary about the Burger King brand, at least as it relates to its security as a brand within Carrols Restaurant Group, Inc:


“We, as I said are basically a company that is in transition, we recognize that our inventory of business is being a franchisee in the Burger King system and being owner operator of two very vibrant Hispanic brands may appear, and probably is, somewhat unnatural in terms of attracting investors and it becomes a very high priority for us to make ourselves look a little more natural for the investor public and will continue to pursue that possibility. We're very bullish on our Hispanic brand and their ability to provide long-term sustainable growth. “


Given that management thinks they need to make the company “look a little more natural for the investor public,” will pursue that opportunity and is bullish about its Hispanic brands, implies to me that the company would be happy to exit the Burger King franchising business if offered the right price.


These comments also highlight the broader Burger King franchisee community’s anger with Burger King Corporation, particularly as it relates to the company’s recent sale.  Franchisees are fed up!


Howard Penney

Managing Director

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 80.51%
  • SHORT SIGNALS 78.32%



November 9, 2010





  • With costs locked in through the 1H of 2011, Warnaco’s management noted that it’s seeing a 6% increase in FOB costs of which 70% have been offset by pricing – the rest is expected to be offset by an increasing mix of international growth and retail sales. While many domestic retailers and brands lack similar growth opportunities, it’s becoming increasingly evident that gross margin expansion is simply not a given in much of retail in 2011.
  • The march towards a merchandising turnaround at Juicy Couture began yesterday with the unveiling of the brand’s new holiday collection designed by Erin Fetherston.  The collection is now available online and includes 11 looks, shoes, evening bags, hats, and jewelry.  Recall that Juicy brought Fetherston in this Spring to jumpstart the brand’s revival.
  • HD content still has a long way to go.  According to Nielsen, although 56% of US households now have at least one HDTV, only 13% of total day viewing on cable and 19% of viewing on broadcast television is “true HD” viewing.  In fact, 80% of broadcasts are still in standard definition. 



UA Nabs Brady - Under Armour has a new big-name endorser in the NFL, the company announced Monday. The Baltimore-based brand signed a multiyear deal with quarterback Tom Brady of the New England Patriots. Under the agreement, Brady will wear the brand’s apparel and footwear for training, as well as debut a customized Under Armour cleat in upcoming games. He will also receive an undisclosed amount of stock options. As a three-time Super Bowl champion, MVP and holder of several NFL records, Brady is the firm’s highest-profile spokesperson to date. “Tom Brady represents a lot of what Under Armour is all about,” founder and CEO Kevin Plank said in a written statement. “He’s humble and hungry and continues to be focused on winning and getting better every single day.” <WWD>

Hedgeye Retail’s Take: Big win for UA - kudos for successfully extracting Brady from Nike’s stable. Without knowing the terms of the deal, tough to say just how dilutive it will likely be in the near-term, but the move is consistent with what management said it would do as well as what the company should be doing at this stage of its growth. Expect marketing highlighting the company’s latest asset in media channels with 8-weeks left in the NFL season – particularly with the Patriots positioned for another post-season run. Keep in mind, however, that if Nike wanted to keep Brady, it would have. It had greater success in selling product around athletes that were lower-profile and not married to supermodels -- -but simply had more edgy off-field personas. This will be interesting to watch.


CK Opens First Pop-up in Tokyo - Calvin Klein has a new home in this city- at least for the next 13 days. The company opens today its first ever multi-brand pop up shop on Cat Street, a trendy shopping strip that intersects tony Omotesando Ave. The more than 1,600-square-foot-space, carries a mix of Calvin Klein Collection, Calvin Klein Jeans, Calvin Klein Underwear, Calvin Klein Home and a series of limited-edition ck Calvin Klein gold products. It will go dark Nov. 22. The entire Calvin Klein crew and soccer star Hidetoshi Nakata, who is also starring in the brand's underwear campaign, descended on the luminous white store to host an opening party Tuesday night. Tom Murry, president and chief executive officer of Calvin Klein, said the company is using the store to gauge the “interest level” for the top-tier Collection business. The company has been looking to reintroduce the designer brand to the Japanese market for a few years and Murry reiterated that he hopes to open a flagship store and shop-in-shops here in the near future. A Tokyo Collection store, operated by Onward Kashiyama, shuttered several years ago and the pop up boutique is currently the only place to buy the luxury collection in the country. Overall, Murry said the Japan business, which includes ckCalvin Klein and jeans, is faring relatively well. Although Japan accounts for only $200 million of the company’s $6.5 billion in turnover, the executive stressed the importance of the market, which is Calvin Klein's oldest outside the U.S. He said the men’s business never really slowed down- despite the recession- and women’s sales are showing signs of recovery. <WWD>

Hedgeye Retail’s Take: With a concentrated department store base more similar to the U.S., Japan makes a lot of sense for the brand. Moreover, given Warnaco’s comments earlier today, the rate of growth expected for the brand in China should help to drive greater awareness of the brand in across the far east.


Deckers Sues Bearpaw - Deckers Outdoor Corp. filed suit in United States District Court in the Central District of California against Tom Romeo and Romeo & Juliette, Inc. d/b/a Bearpaw, Inc. seeking a Court order to stop them from copying the trade dress design of several UGG boots. According to Angel Martinez, Deckers Chairman and CEO, in a statement, "UGG Australia's success has fueled an entire industry of knock-off products like Bearpaw. Bearpaw is misleading consumers and creating significant brand confusion by repeatedly copying our designs, but using inferior materials, constructions and craftsmanship." <WWD>

Hedgeye Retail’s Take: These knock-off lawsuits are rarely pursued given the associated cost and lack of timely resolution. However, a quick look on Zappos demonstrates the fact that Bearpaw’s boots sell for half the price of a comparable Ugg boot with little else differentiating the two. Even the size and positioning of labels make the cheap alternative a near ringer for the original. Recall that the “knock-off” bear case on DECK has been in existence Uggs made Oprah’s list of must haves.


Hermes Raises Full-Year Forecast - Hermes International SCA, the French luxury-goods maker in which LVMH Moet Hennessy Louis Vuitton SA holds a stake, raised its full-year revenue forecast after third-quarter sales jumped 31 percent. Revenue may climb around 15 percent in 2010, excluding currency swings, assuming that “solid” sales growth continues in the fourth quarter, Hermes said today in a statement, revising an Aug. 31 forecast of 12 percent growth. Sales increased to 590.1 million euros ($818.4 million) from 452.1 million euros a year earlier, the Paris-based company said. Hermes’s sales of leather goods rose 32 percent as more shoppers in Asia picked up handbags such as the company’s Birkin model. Sales of luxury goods may climb this year to the highest level since 2007 after the worst year on record, consulting firm Bain & Co. estimates. Revenue at PPR SA’s Gucci Group rose 27 percent in the third quarter and sales of fashion and leather goods at LVMH rose 26 percent. <Bloomberg>

Hedgeye Retail’s Take: Consistent with stories of out-of-stocks and supply shortages in the super-luxury segment, Hermes demonstrates the resiliency in the luxury sector.  Good time to take the trade for LVMH, but somehow we doubt this is merely a short-term investment.


Zegna Breaks Into e-Commerce - On Dec. 9, the men’s wear brand will launch an online store operated by Yoox that will offer both the firm’s signature line and Zegna Sport collections, targeted to a younger customer. The Z Zegna line is already available at Thecorner.com, a virtual mall also operated by Yoox. The new online shop “represents a natural evolution of the brand, in addition to being the very first step in our second century of history,” chief executive officer Ermenegildo Zegna told WWD. Zegna is marking its centenary this year. The opening of e-commerce is part of the company’s “new digital strategy, with the purpose to increasingly connect with customers through Web marketing, interactive technology and social media,” said Zegna. The executive noted the company will thus “be able to open up to a new kind of customer, conquering another market segment, in addition to providing an additional service to our existing customers. I believe digital marketing is a substantial pillar of our brand strategy, one we cannot disregard.” While Yoox operates the back end, the brands control all communication strategies, creativity, product, pricing, marketing, events and special content, and maintain a direct dialogue with customers, said Marchetti. <WWD>

Hedgeye Retail’s Take: When your brand waits over a decade to launch e-commerce, it become newsworthy.  Good news for Zegna fans. 


NBA Store to Close on Fifth Avenue Citing Higher Rents - The NBA Store plans to close in late February, a victim of rising rents. The building that houses the store, at 666 Fifth Avenue and 52nd Street, was sold in 2007 for $1.8 billion, the largest single-building sale in the city’s history. Of the 85,000 square feet of retail space in the building, the NBA Store occupies 35,000, with 16,000 used for selling. Other tenants — Brooks Brothers and Hickey Freeman — departed in 2009. Real estate experts said retail space at 666 Fifth Avenue and buildings in its vicinity command some of the highest retail rents in the city. According to Jeffrey D. Roseman, executive vice president and principal of Newmark Knight Frank Retail, ground floor rents on Fifth Avenue start around $2,000 per square foot. According to experts, rents along Fifth Avenue between 49th Street and 59th Street rose 15 percent since the spring. The space the NBA store inhabits is expected to be priced around $2,200 a square foot, sources said. Uniqlo is taking over Brooks Brothers’ 90,000-square-foot space. The Japanese retailer set a record when it agreed to pay $300 million in rent over 15 years. A Hollister Epic flagship is also slated to open in 20,000 square feet of the former Hickey Freeman space. The NBA Store opened in 1998. “It does not make economic sense for us to remain in the current location given the increased rent,” said Linda Choong, senior vice president of global retail development at NBA. “We are actively pursuing a new location in New York City. We are also considering a temporary store location during the build-out process.”

Hedgeye Retail’s Take: At a $2,200 per foot asking price, there’s no question the NBA can find better value somewhere else.  Perhaps we also see a stepped up effort between Champs/NBA/Adi to bridge the gap during the transition to a new location?  The Footaction store on 34th St. (near MSG)  is a prime spot for an upgrade to an NBA theme. 


Mobile Web Penetration Grows Among College Students - While most children and teens still rely on feature phones, college students have graduated to the world of mobile internet devices—including smartphones, tablets and mobile game consoles. According to the “ECAR Study of Undergraduate Students and Information Technology” by Shannon D. Smith and Judith Borreson Caruso for the EDUCAUSE Center for Applied Research, 62.7% of US undergraduates surveyed had an internet-capable handheld device. That number fell about halfway between the 83.8% who had a laptop and the 45.9% with a desktop PC. Ownership of internet-enabled handheld devices increased by more than 11 percentage points between 2009 and spring 2010, with the number of students planning to purchase such a device in the next year holding steady. The study was fielded before the release of the iPad, which many students expressed a specific interest in purchasing. <emarketer>

Hedgeye Retail’s Take: Hmmm.  College kids use smartphones?  No kidding.   They also text and Tweet (excessively).


R3: WRC, UA, LIZ, DECK - R3 11 9 10


The President Talks FDI with India - Obama, here on a visit to talk up economic cooperation and trade between the two countries, has joined the chorus of those pressuring the Indian government to loosen rules on foreign direct investment in retailing. Currently India restricts overseas firms to 51 percent ownership of single brand stores, meaning they need a local partner. Foreign companies can own 100 percent of cash-and-carry stores, but these can sell only to other retailers and businesses, not to the general public. Multibrand retailing is forbidden in India — which blocks the likes of Wal-Mart, Carrefour and Tesco from entering the market. The rules are seen as protecting India’s thousands and thousands of small independent shopkeepers. Addressing business leaders, the commerce minister of India, Anand Sharma, and planning commission deputy chairman Montek Singh Ahluwalia in Mumbai over the weekend, Obama said, “Here in India, many see the arrival of American companies and products as threats to small shopkeepers and to India’s ancient and proud culture. But these old stereotypes, these old concerns ignore today’s reality.” Given the potential of the market, global brands are eager to see the removal of any barriers to their entering India. The Indian retail market ranks as the fifth largest retail destination in the world, according to the India Retail Report, and is expected to quadruple in size by 2025. Estimated at $511 billion in 2008, the retail sector is forecast to grow to $833 billion by 2013 and $1.3 trillion by 2018. And yet only about 5 percent of the Indian retail market is in the organized segment. Just weeks before Obama’s visit, Wal-Mart chief executive officer Mike Duke spoke about FDI in New Delhi. “Our desire is to certainly see a 100 percent opening up of FDI in the retail sector,” he told reporters. “We’re in India because of the size of the population as well as the aspiring middle class that is willing to spend.” <WWD>

Hedgeye Retail’s Take: The key here is that just 5% of India’s retail distribution is organized.  Yes, that means that almost $500 billion in retail sales are transacted via independent, small shops and stalls.  Even with FDI passed, it will take a long time for modern, multi-branded retailers to make meaningful inroads. 


Sourcing Relationships Change With the Times - In the new dynamics of global sourcing, partnerships are in and skipping around the globe is out. But maintaining a real business relationship — one where brand and factory understand each other’s needs and problems and allow for give and take in timeworn practices — will require a bit of care and attention. “When is the last time you guys took a box of chocolates to your vendor? Never,” Munir Mashooqullah, principal and founder of Synergies Worldwide, said at the WWD Forum, “Global Opportunities: Sourcing & Supply Chain.” “It’s an exception.” Today, he said the business is a “price-point game” where cotton prices, currency fluctuations, tight credit, even natural disasters, can affect how much products cost, as well as how fast they arrive. “We talk about partnership, but we really have not been partners,” Mashooqullah said. “We’ve treated vendors like a slave constituent and that time has gone.” In order to build relationships, Mashooqullah said companies should research and understand their vendors’ businesses and avoid “low-balling” them. Given the continuing consolidation of global apparel production, brands are finding it’s not as easy to pack up shop and move to another factory or another country with lower costs, in part because there are fewer new producers opening up. Sukumaran said the partnership model is the only one that is sustainable in the long term because it is focused on meeting customers’ needs. “The past is no longer a guide to the future,” said Chris Koh Lian Chye, business director at SL Ponie Pte. Ltd. The buyer needs to stop moving to countries where labor is just cheap, and instead should also consider countries where the political, economic and cultural climate is stable, he said. <WWD>

Hedgeye Retail’s Take: There is a clear shift that’s developed between brand’s focus on quality of relationship instead of solely on price. With a multitude of macro factors becoming more commonplace in the today’s market in addition to increased competition over top suppliers, we expect the shift towards a more collaborative dynamic between brands and factories to be more lasting than fleeting in nature.


Consulate-General of Pakistan pays visits to Wenzhou - Pakistan’s Consulate-General Zafar Hasan has recently led a group of leather footwear manufacturers to meet up with Wenzhou city Mayor Meng Jianxin in Shanghai. The purpose of the meeting is to seek cooperation on leather and footwear industry between Wenzhou and Pakistan. According to Hasan, Pakistan is the country known for its leather and leather goods production, with 40% of leather shoes being sold in Pakistan are made in China. He invited Wenzhou footwear producers to take part in the Pakistan Trade Expo to be held the coming February. Wenzhou has many shoemakers and tanneries, and there is a large room for bilateral cooperation between the two countries’ leather industry, said Mayor Mang. <FashionNetAsia>

Hedgeye Retail’s Take: Collaboration among leading export countries suggests further evidence that price disparity will be less important relative to the strength of foreign brand relationships with leading factories in the far east as borders become less defined.


Sri Lanka Taking Clean/Green Approach - Sri Lanka’s apparel sector has broadly adopted cleaner production methods and currently has been marketing its products under the slogan "Garments without guilt", according to the country’s foreign secretary Palitha Kohonain. According to Kohona, sustainable development means to attain sustained economic growth, which is socially just and ecologically sound as well as based on harmony and stability. Pertaining to this, the National Council for Sustainable Development (NCSD) has been formed in collaboration with all line Ministries, under the “Haritha Lanka” (Green Lanka) Program which puts  emphasis on energy, climate change and other environmental aspects. <FashionNetAsia>

Hedgeye Retail’s Take: With many of the leading export countries facing increasing scrutiny over tannery operations and its recent shift towards a textile economy, Sri Lanka makes an admirable stab at gaining share by targeting the increasing clean/green movement.



Sheldon likes it, while WYNN prefers profit share. MGM and MPEL should embrace it.



With SJM reporting, all the data is in.  The first chart shows quarterly Macau EBITDA market share by quarter.  We started looking at EBITDA share a few quarters ago when many thought rising commissions would eat into profits.  That really hasn’t happened.  In the second chart, one can see that with the exception of Wynn, every company increased its property level EBITDA sequentially in Q3, and Q3 EBITDA exceeded Q1 EBITDA in each case.


LVS dominates the EBITDA share discussion, which is probably why Sheldon Adelson is a huge proponent of this metric.  With low leverage, Steve Wynn likes to focus on profit share.  Hold percentage certainly impacts revenues and profitability, but the two newest EBITDA share champions could be MPEL and MGM.  Absent the hold impact, both of these companies are probably EBITDA share gainers going forward. 


MACAU EBITDA SHARE - macau property


MACAU EBITDA SHARE - macau property 2


TODAY’S S&P 500 SET-UP - November 9, 2010

As we look at today’s set up for the S&P 500, the range is 35 points or -1.98% downside to 1199 and 0.88% upside to 1234.  Equity futures rebound from lows to trade modestly above fair value, tracking numbers such as Tyco, reporting Q4 EPS $0.74 ex-items vs Reuters $0.66, and updates across European companies. In economic data today: Redbook Chain Store, Sep Wholesale Inventories and ABC Consumer Comfort Index.

  • Allscripts Healthcare Solutions (MDRX) posted 3Q adj. EPS 19c vs est. 17c
  • American Public Education (APEI) reported 3Q EPS 30c vs est. 29c
  • Boeing (BA) said Saudi Arabian Airlines ordered 12 Boeing 777s in a contract valued at $3.3b
  • Clear Channel Outdoor Holdings (CCO) reported 3Q rev. $695.1m vs est. $698.4m
  • Emdeon (EM) said it sees 2010 rev. at low-end of $1.0b-$1.06b range vs. est $997.9b
  • EnerNOC (ENOC) sees 4Q rev. $20m-$24m vs est. $28.8m
  • Genomic Health (GHDX) posted 3Q EPS 12c vs est. <1c
  • Hologic (HOLX) sees 1Q adj. EPS ~28c vs est. 31c 
  • Keynote Systems (KEYN) boosted Q dividend to 6c-shr from 5c-shr
  • McDermott International (MDR) reported 3Q adj. EPS ex-items 44c vs est. 28c
  • Priceline.com (PCLN) forecast 4Q adj. EPS $2.91-$3.06 vs est. $2.68
  • Rackspace Hosting (RAX) reported rev. $199.7m vs est. $197.6m
  • SciClone Pharmaceuticals (SCLN) boosted 2010 EPS forecast to 41c-46c from 31c-35c; says it expects “substantial expenses” in connection with previously disclosed SEC, DoJ probe
  • Warnaco (WRC) raised FY adj. EPS forecast to $3.45-$3.55 from $3.40-$3.50, vs est. $3.53


  • One day: Dow (0.33%), S&P (0.21%), Nasdaq +0.04%, Russell +0.02%
  • Month-to-date: Dow +2.59%, S&P +3.38%, Nasdaq +2.9%, Russell +4.75%
  • Quarter-to-date: Dow +5.74%, S&P +7.19%, Nasdaq +8.93%, Russell +8.97%
  • Year-to-date: Dow +9.39%, S&P +9.7%, Nasdaq +13.7%, Russell +17.81%
  • Sector Performance: Energy +0.34%, Materials +0.24%, Tech +0.05%, Consumer Discretionary (0.13%), Telecom (0.28%), Consumer Staples (0.29%), Healthcare (0.3%), Industrials (0.33%), Utilities (0.62%), and Financials (0.77%)
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Coventry Health +6.63%, JDSU +4.91% and Halliburton +4.73%/NY TIMES -4.93%, Micron Tech -4.68% and Anadarko -4.29%.


  • ADVANCE/DECLINE LINE: -238 (-749)  
  • VOLUME: NYSE: 909.45 (-26.86%)
  • VIX: 18.26 -1.40% - YTD PERFORMANCE: (-15.77%)
  • SPX PUT/CALL RATIO: 1.62 from 1.73 -6.41%  


  • TED SPREAD: 17.10 -0.406 (-2.319%)
  • 3-MONTH T-BILL YIELD: 0.13%
  • YIELD CURVE: 2.19 from 2.20


  • CRB: 315.25 +0.54% - up 10 of last 11 days
  • Oil: 87.06 +0.24% - BULLISH - up 6 straight days
  • COPPER: 395.65 +0.20% - BULLISH  - up 5 of the last 6 days
  • GOLD: 1,405.13 +0.63% - BULLISH


  • EURO: 1.39.41 -0.65% - BEARISH - looking to be down for 3 days in a row
  • DOLLAR: 77.027 +0.63%  - BULLISH



European markets:

  • FTSE 100: -0.43%%; DAX +0.69%; CAC 40 +0.74%
  • European markets, after a mixed open have moved higher to currently trade near session highs.
  • A positive response to corporate results from Barclay's and Vodafone outweighed continuing worries over the “burning” peripheral Europe, with peripheral debt spreads widened.
  • All but two industry groups trade higher with construction, basic resources and banks the leading gainers.
  • Healthcare and financial services trade lower.
  • UK Sept Manufacturing production +4.8% y/y vs consensus +4.9% and prior revised to +6.1%
  • UK Sept Industrial production +3.8% y/y vs consensus +3.5% and prior revised to +4.3%
  • Germany Oct Final CPI +1.3% y/y vs preliminary +1.3%
  • France Sep Industrial Production at 04:30 ET  

Asian markets:

  • Nikkei (0.4%); Hang Seng (1.0%); Shanghai Composite (0.8%)
  • Asian markets ended the day mixed.
  • Tech stocks retreated on earnings concerns, but South Korea edged up.
  • Japan retreated on profit-taking and a stronger yen.
  • China fell on fears that higher inflation may lead to further monetary tightening as the central bank surprised people by auctioning one-year bills at a higher yield than last week.
  •  Japan September current account surplus ¥1.960T vs survey ¥1.664T.
  • Japan October M2 +2.7% y/y. 

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends













Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.