Initial Claims Approach YTD Lows

Initial jobless claims seem to be getting better. The headline initial claims number rose 4k last week to 439k, but rolling claims fell 4k to 443k. As the following two charts show, both reported and rolling claims are knocking on the door of their YTD lows, but have yet to break through. Claims still need to be in the 375-400k range for unemployment to meaningfully improve - still well below where we are now.






Yield Curve Widening

The following chart shows 2-10 spread by quarter while the chart below that shows the sequential change. After falling sharply for two quarters, the 2-10 spread has stabilized thus far in 4Q.  Yesterday’s closing value of 238 bps is up from 224 bps last week.






The table below shows the stock performance of each Financial subsector over four durations. 






Joshua Steiner, CFA


Allison Kaptur

Big Week in Athletic Footwear & Apparel Sales

The athletic industry reported a solid week. Underlying trends improved across the board with apparel coming in hot last week. Here are our key takeaways: 

  • Both footwear and apparel sales improved sharply on a sequential weekly basis sparking a rebound in underlying trends. Importantly, the quality of sales acceleration is notable in the absence of promotional activity with ASPs remaining firm up low-to-mid single-digit.
  • Apparel is the key callout with Athletic Specialty sales up +31.5% on the week building on reaccelerated trends from last week. Despite facing its second easiest compare of the year (this week is the easiest), the underlying trailing 3-week on a 2yr basis rebounded sharply.
  • Footwear posted a solid week +5.9% suggesting the deceleration reported last week up +1.2% compared to +10.9% in the prior week was more likely an anomaly than trend.
  • Broad-based strength across regions with each posting double-digit gains suggesting improved underlying demand.
  • Skechers officially broke its positive sales momentum posting the first decline in year-over-year sales since June 2009 with toning trends (sales and ASPs) continuing to deteriorate.
  • Nike remains strong though the clear standouts are Under Armour with sales rebounding sharply following tough apparel compares in mid-October with sales up 45% and significant outperformance at outdoor outerwear brands Columbia up +31% and VFC (The North Face) up 59% - positive for DKS/HIBB.

Big Week in Athletic Footwear & Apparel Sales  - FW App Ind 1Yr 11 17 10


Big Week in Athletic Footwear & Apparel Sales  - FW App Ind 2Yr 11 17 10


Big Week in Athletic Footwear & Apparel Sales  - FW App FW Table 11 17 10


Big Week in Athletic Footwear & Apparel Sales  - FW App App Table 11 17 10


Casey Flavin



General Mobama

“There is, in a competitive society, nobody who can exercise even a fraction of the power which a socialist planning board would possess.”

-Friedrich Hayek


Hayek is to the Keynesians of Big Government Intervention what capitalism is to socialism. Watching some Americans beg for the scraps of a short-term socialist experiment this morning is apparently the kind of groupthink that President Obama supports:


“Through the IPO, the government will cut its stake in GM by nearly half, continuing our disciplined commitment to exit this investment while protecting the American taxpayer" –Barack Obama




Hearing our used-car salesmen of professional American politicking talk about “disciplined” investing for the American people must be some sadistic form of a joke. I, for one, will go on the record today calling this GM deal out for what it really is – socialism. General Mobama, nice trade.


Co-founder of investment banking outfit Evercore Partners, Roger Altman, loves this short-term trading of American capitalism for privileged socialist handouts. His firm was paid upwards of $46 MILLION in pre-GM bankruptcy fees and allegedly wants another $17-18 MILLION in what bankers call “success fees” for this GM deal going off with a bang this morning. Roger, nice trade.


I couldn’t make this up if I tried, but Roger met with General Mobama earlier this week to talk about his post GM deal day job. Roger likes to trade the banking-fee-cycle with time moonlighting in DC. And apparently the President of the United States liked doing this GM deal so much that he is considering Altman as Larry Summers replacement at the White House.


Wait, is Altman a banker or a politician? Sadly, when getting in tight on these socialist handout jobs, one is a prerequisite for the other. Roger Altman has an impeccable resume in old-boy network banking and politics:

  1. 1974 he became Partner at Lehman (banker)
  2. 1 he served as Assistant Secretary of the Treasury (politician)
  3. 1 he went back to Lehman and became co-head of investment banking (banker)

Oh yeah baby, that’s the change General Mobama is talking about. Let’s bring back someone who really understood Jimmy Carter and Arthur Burns style economics and let’s get this Jobless Stagflation party started.


Don’t worry, you won’t be disappointed in this storytelling. The deeper you dig into a pile of dogma the more it smells. Altman loves working at places that lever and lather themselves up with cheap moneys. After Lehman, he did LBOs at Blackstone (banker). Then, in 1993, he went back to Washington as Deputy Treasury Secretary (politician) for the only 2 years that resembled 1970’s style US Jobless Stagflation until… well… today!


No matter where you go in America this morning, this is where we are. I, for one, won’t let my son and daughter YouTube me on this day of November 18th, 2010 as one of the pretending patriots who supports socialist bailouts.


Back to the market…


Today’s pump and dump government rally should provide a fantastic opportunity to put some of our short positions back on (in the Hedgeye Portfolio we currently have 15 LONGS and 10 SHORTS). The US stock market has only had 1 UP day in the last 8. In the last 2 days the SP500 became what our Hedgeyes call immediate term TRADE oversold.


Yes, like your US government, we trade…


In terms of the Hedgeye Asset Allocation Model, in the last week, on weakness, we’ve scaled back up to 6% positions across the board (from ZERO percent at the market top on November 8th) in US Equities, International Equities and Commodities. We are long US Healthcare (XLV), Germany (EWG), Corn (CORN), and Gold (GLD). All of these positions are candidates to be sold. Our current asset allocation to Cash = 58%.


Yes, like any free market capitalist, we reserve the unalienable right to see this government sponsored casino for what it has become…


In terms of levels on the SP500, going into today’s open, from the 1178 level, we measure 2:1 upside with a significant level of immediate term TRADE resistance up at 1191. If the SP500 closes above 1191, that’s bullish. If it breaks, that’s bearish.


In the face of 1. Global Growth Slowing 2. Global Inflation Accelerating, and 3. Interconnected Risk Compounding, I don’t want a banker or a politician telling me how to manage risk. I need a transparent and accountable General who I can trust gets this game – and I guess, for now, that will have to be me.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


General Mobama - JC

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TODAY’S S&P 500 SET-UP - November 18, 2010

As we look at today’s set up for the S&P 500, the range is 20 points or -0.64% downside to 1171 and 1.05% upside to 1191.  Equity futures are trading higher tracking strength in European and Asian equities. Concern over the Irish debt situation eased, while the Spanish bond auction did not go as bad as feared. In important economic data today: Initial Jobless Claims, October Leading Indicators, November Philadelphia Fed Index.

  • Dendreon (DNDN) won backing of FDA advisory panel for Provenge
  • DryShips (DRYS) reported 3Q adj. EPS 38c vs est. 25c
  • Limited Brands (LTD) raised FY adj. EPS forecast to $1.82-$1.97, vs est. $1.94; also declared special $3-shr dividend
  • PetSmart (PETM) reported 3Q EPS 38c vs est. 38c


  • One day: Dow (0.14%), S&P +0.02%, Nasdaq +0.25%, Russell 2000 +0.34%
  • Month-to-date: Dow (0.99%), S&P (0.39%)%, Nasdaq (1.25%), Russell +0.63%
  • Quarter-to-date: Dow +2.18%, S&P +3.28%, Nasdaq +4.53%, Russell +4.68%
  • Year-to-date: Dow +5.56%, S&P +5.69%, Nasdaq +9.12%, Russell +13.17%
  • Sector Performance: Disc +0.7%, Energy +0.4%, Healthcare +0.1%, Consumer Spls (0.01%), Tech (0.05%), Utilities (0.1%), Industrials (0.1%), Materials (0.1%), Telecom (0.2%), Financials (0.6%).


  • ADVANCE/DECLINE LINE: 611 (+2860)  
  • VOLUME: NYSE - 943.05 (-30.23%)
  • VIX: 21.76 -3.63% - YTD PERFORMANCE - (+0.37%)
  • SPX PUT/CALL RATIO: 1.60 from 1.80 -11.24%  


  • TED SPREAD: 15.15 -0.101 (-0.665%)
  • 3-MONTH T-BILL YIELD: 0.14% -0.01%
  • YIELD CURVE: 2.39 from 2.34


  • CRB: 295.43 -0.27%
  • Oil: 80.42 -2.31% - BULLISH
  • COPPER: 373.40 +0.08% - BULLISH
  • GOLD: 1,337.32 flat - BULLISH


  • EURO: 1.3531 +0.33% - BEARISH
  • DOLLAR: 79.084 -0.16%  - BULLISH



European markets:

  • FTSE 100: +1.41%; DAX: +1.42%; CAC 40: +1.64%
  • European markets are posting solid gains as investor appetite for risky assets returns amid rising hopes a solution to Ireland's banking crisis is near at hand.
  • The rally is being led by gains across most sectors with Basic resources, Construction Banks and Auto names prominent.
  • A number of strong earnings reports have also lifted sentiment with SABMiller posting consensus beating interims.
  • UK Oct Retail Sales (0.1%) y/y vs cons (0.1%)  

Asian markets:

  • Nikkei +2.06%; Hang Seng +1.8%; Shanghai Composite +0.94%
  • Asian markets were mostly up today, on speculation that concern over China’s anti-inflation policies may have been a bit too much.
  • Resource stocks powered much of the region's rises.
  • Financials led gains in Japan up 4-9%, as all 33 sectors rose.
  • Resource shares led a rise in Hong Kong.
  • Bargain-hunting lifted South Korea as worries about Ireland’s debt crisis eased.  Technology shares gained.
  • On a softer dollar, resource stocks outperformed after recent falls in China.
  • Australia was lifted by resource stocks, as banks declined slightly. 

Howard Penney
Manging Director

THE DAILY OUTLOOK - levels and trends














Investors may be better off creating their own CZR at only 10x EBITDA.



Over 14x 2011 EV/EBITDA seems exorbitant to us, bordering on highway robbery.  We decided to try and recreate CZR through public securities.  While not perfect, we think a combination of BYD, MGM, PENN, and short a little Wynn Macau reasonably replicates the CZR portfolio.  By our math, we can do this at a 10x EV/EBITDA multiple, a 30% discount to the 14x implied by the midpoint of the CZR $15-17 offering range.


The CZR bulls will say that you can’t recreate the Harrah’s Total Rewards system and there is brand equity with World Series of Poker.  However, PENN has huge growth in Ohio which isn’t reflected in its 2011 valuation. Moreover, BYD has significant land holdings on the Strip which do not currently contribute to EBITDA. Finally, MGM has international brand development and management opportunities, again not included in its EV/EBITDA valuation.


Let’s not forget CZR’s industry leading leverage of 11.5x.  While MGM is in the ballpark, BYD is “only” at 6x leverage and PENN maintains just 3.5x leverage.  Is Gary Loveman, Total Rewards, and the hope of near-term internet gaming enough to justify a 4x EBITDA turn valuation differential?  We would argue definitively no.

On the Rebound

With Foot Locker reporting 3Q results tomorrow, it bears repeating that we remain bullish on the name both into the print as well as over the intermediate term. None of this is new if you’ve been reading our posts since the beginning of 2010 focused on FL’s turnaround prospects. What it is new, however, is the latest monthly athletic footwear data point depicting category performance. If one thing stands out more than than anything, it’s that basketball is on the “rebound.”


While the trend below is clear, it’s even more pronounced on a year-over-year basis with sales improving: +19%, +20% and +53% in August, September, and October respectively (this differs from the chart below which is based on a trailing 3-month data set). No other retailer is more levered to the category than FL.


Expect to hear enthusiasm on Friday’s call regarding the resurgence of hoops, especially as it relates to all four key brands (NKE, UA, Adi, and Reebok) pumping new products supported by major marketing efforts. Beyond the commentary, continued strength in hoops will be a key contributor to same store sales throughout the remainder of the year and into the Spring, or about the same time Nike drops its re-launched “Free” platform.


On the Rebound - FW Mo by Cat 2 11 10

For reference the current category market share at retail in the specialty athletic channel based on NPD is:


Running = 31%

Basketball = 21%

XTraining = 3%

Classics (originally designed for performance at launch e.g. Shoxx now in this category) = 18%



Eric Levine


Early Look

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