The Boot Heat Map 2010 Edition

Last year boots, both fashion and cold-weather, were undoubtedly one of the hottest trends of the Fall/Winter season. The combination of an early and record breaking cold selling season coupled with a women’s fashion trend favoring tapered bottoms (leggings, jeggings, skinny jeans) all contributed to what most manufacturers and retailers regard as THE best boot season ever. Fast forward one year later and we check in on the longevity of this trend.


First, the weather has not nearly been as cooperative and as a result cold-weather product has been slow to ramp against very difficult compares. With that said, early November sales have picked up for the category as the weather turned. Second, the fashion boot category remains robust even against difficult comparisons. Interestingly, the updated six year Boot Heat Map below suggests it is rare to see multiple years of strength for the category in a row. Despite the long adds, anecdotes and early data suggest that Fall/Winter 2010 is once again a good year for fashion boots.


The season is far from over, but one doesn’t need to look far to see most holiday fashion campaigns featuring boots of all heights, heels, and fabrications. While the skinny bottom trend may be drawing to close, it appears there is one final push for the boot category. Unfortunately, the ASP increases we saw last year resulting from the favorable boot mix shift is unlikely to be repeated on the same magnitude. Yes, boots are still hot, but this year’s story will have to be unit driven in order to comp last year’s extraordinary season.


The Boot Heat Map 2010 Edition - boot map


Eric Levine


Slowdown in SE Asia – A Leading Indicator For Global Growth?

Conclusion: The slowdown across SE Asia is both supportive of our bearish outlook for the global economy and a leading indicator for slower growth in advanced economies, such as the U.S.


Since early-October, we’ve been beating the drum on three themes that have us generally bearish on equities globally (not to be confused with ALL equities globally; we are bullish on Germany’s DAX, for example). Those themes are: 

  1. Growth is slowing;
  2. Inflation is accelerating; and
  3. Interconnected risk is compounding. 

We were admittedly early in calling for a correction in October; by that same token, we are not at all surprised by the recent weakness in many equity markets and commodities globally, as incremental data that supports the above theses continues to trickle in.


Over the weekend, we received 3Q10 GDP reports from SE Asia’s four largest economies that support our three-pronged bearish outlook, as growth slowed sequentially in Indonesia, Thailand, Malaysia, and Singapore – the world’s 16th, 25th, 31st, and 45th largest economies, respectively.


While it’s important to note that each economy is still growing at an enviable pace in 3Q10, the marginal deterioration is cause for alarm in our models. From an economic standpoint, the delta from “great” to “good” is equally as bearish as the delta from “good” to “bad”. Considering, we highlight sequential slowdowns like these as leading indicators for depressed growth in the coming quarters.


Using our Growth-Inflation Delta Analysis (GIDA), we are able to see quite vividly points one and two from above:


Indonesia: In 3Q10, Real YoY GDP growth slowed -38bps and Inflation (CPI YoY % Change) accelerated 75bps on a quarterly basis.


Slowdown in SE Asia – A Leading Indicator For Global Growth? - 1


Thailand: In 3Q10, Real YoY GDP growth slowed -251bps and Inflation (CPI YoY % Change) accelerated 5bps on a quarterly basis.


Slowdown in SE Asia – A Leading Indicator For Global Growth? - 2


Malaysia: In 3Q10, Real YoY GDP growth slowed -358bps and Inflation (CPI YoY % Change) accelerated 29bps on a quarterly basis.


Slowdown in SE Asia – A Leading Indicator For Global Growth? - 3


Singapore: In 3Q10, Real YoY GDP growth slowed -891bps and Inflation (CPI YoY % Change) accelerated 118bps on a quarterly basis.


Slowdown in SE Asia – A Leading Indicator For Global Growth? - 4


While most U.S.-based investors wouldn’t care to read more than a single sentence regarding SE Asian economies, we flag these as important data points you should be cognizant of – particularly in the context of the three-pronged outlook outlined above.


Further, upon considering that these four economies’ share of global exports is nearly 2x (1.78) their share of global GDP, we posit that a slowdown in this region is a leading indicator for a slowdown in the inventory cycle of advanced economies. Positive inventory adjustments have accounted for 63% of U.S. GDP growth YTD, so a slowdown across the SE Asian region may be a stealth leading indicator for inventory adjustments being a drag on U.S. GDP growth in 2011.


Slowdown in SE Asia – A Leading Indicator For Global Growth? - 5


Lastly, it’s important to keep in mind the following stats, when considering the merits of Asian trade data: 

  • Exports account for roughly 40-45% of Asia’s GDP;
  • The U.S. and E.U. combine for roughly a third of Asia’s export destinations; and
  • 40-50% of intra-regional trade within Asia is basic and intermediate goods meant for re-export outside of the region. 

All told, the slowdown we are seeing across Asia’s export economies continue to flash bearish signals as it relates to global growth. With each passing day, it grows increasingly likely that the easy reflation money brought on by QG has been made. Now, investment professionals will have to once again “earn” their performance. Given the recent run-up in equity and commodity prices globally, we feel most of the opportunities for alpha will be found on the short side for the next 3-6 months, as growth slows globally, inflation continues to afflict economies globally, and interconnected risk (cross-asset correlation risk; Housing Headwinds; Sovereign Debt Dichotomy; U.S. State & Local Government headwinds) compounds.


Darius Dale


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Cotton Driving GIL Higher

GIL having a solid day today – up 3%, which we think is a function of the fact that Cotton is down by 4.9% today, and is off 22.3% since its Nov 12th peak.


It’s going to take a LOT more than a 22% swing in cotton in order to ease pressures building in the supply chain for GIL and its peers (a number below a buck). But nonetheless, the company reports its 4Q next week, and is likely to say and do whatever it can in order to finish off the year on a positive note. Having a recent slide in Cotton – even from what might have been a false top – adds fuel to the fire for GIL. They’ll probably leave out what most of its peers have as well…that at $1.22, Cotton is still trading 3-Standard Deviations above its 20-year mean.


Keith is short GIL in the Hedgeye portfolio, and the critical levels from a risk management perspective are TRADE = $27.79, and TREND = 28.99. 


October outperforming recent trends, adjusted for seasonality.



Given the volatility over the past two years, we believe sequential performance, adjusted for seasonality, gives a better measure of market health than simple YoY comparisons.  Assuming Mississippi reports an in-line number this week, October riverboat revs, a regional market barometer, will be 2-3% above recent trends, adjusted for seasonality, as seen in the chart below.  Easy comps in November and December set the stage for growth for the rest of the year.  Since attendance was lower than that of a year ago and hold stayed relatively steady, higher per capita spending was the catalyst for October’s outperformance.




Here are some regional market takeaways for October:


West Virginia (table revs up 94.86% YoY):  With a 1-2 punch seen below, Charles Town (PENN) recorded a new monthly high in table revs, $10.69MM.


1)      Charles Town continues to cannibalize its competition.  Ever since Charles Town opened tables on July 2, it has grown market share.    

2)      New customers propelled state table revs to 85-110% growth in the last 3 months.




Illinois (casino revs down 0.2% YoY):  Argosy (PENN) had its best YoY performance (-2%) since November 2007.  We’ll find out next month whether the better results were related to hold.


Louisiana (casino revs up 1.8% YoY):  1st YoY gain for the state since Sept 2009.  PNK had better results at Boomtown Bossier but L’Auberge lost 4.3% YoY.


Missouri (casino revs up 4.5% YoY):  Lumiere Place (PNK) was down 17.6% YoY and River City (PNK) reported $14.4MM.  However, the combination of Lumiere and River City continues to trend around $27-29MM of revenues monthly.  All of ISLE’s properties reported YoY growth.


Pennsylvania (slot revs up 11.5% YoY):  PENN National reported $20.8MM (+1.8% YoY).  Disappointing coin-in (-11.32% YoY) offset higher than average hold (+88bps).  Meanwhile, Sands Bethlehem (LVS) had the highest YoY change among the casinos; coin-in for that property has exhibited positive YoY growth since May 2010.


Florida: (same-store revs up 18.2% YoY) Pompano (ISLE) delivered a strong performance, having its highest YoY growth since February 2010.


Atlantic City:  The only disappointment.  Total revenues, table revs, and slot revs were down 14.6%, 16.2%, and 10.3% YoY, respectively.  However, Borgata (BYD) fared relatively well, with revenues only slipping 0.4% YoY.  This was due to a 4% and 4.1% YoY growth in slot win and slot drop, respectively.  By revenue market share, Borgata attained 18.7%, its highest share since January.


Conclusion: Despite the ongoing pantomime that is government officials pretending not to see inflation, the Bernanke dollar debacle has not made its way into the official inflation numbers as yet but it is on the way.  


The recently reported lack of inflation (on a seasonally adjusted basis) outside of the energy sector should not last long, as evidence continues to support that it will be reflected in upcoming data.  Nonetheless, annual inflation started creeping higher in October, albeit slowly, in both the CPI and PPI and I expect a continuing sequential acceleration over the next few months.


Illogically, the inflation that consumers are seeing day-to-day from the effects of Quantitative Guessing is the type of inflation the Fed chooses to ignore, focusing instead on "core" inflation. The effects of volatile food and energy cost cannot be ignored; certainly those who consume food or energy (everyone) do not have the luxury of being able to ignore their costs.  The food index rose 0.1% in October after a 0.3% increase in September.


As Keith said in today’s Early Look, “Over the course of global economic history there’s never been a world power that’s devalued its way to prosperity".  While commodity prices can be volatile, the long-term weakness in the U.S. dollar and increased purchasing-power of gold and stronger global currencies are here to stay despite the credibility-devalued rhetoric of the government.  As the sovereign debt dichotomy migrates to the USA in the coming months, the only option being put forth by the mainstream view is the spending or creation of whatever money is needed in order to prevent systemic failure. 


In October, the softer-than-expected CPI was dominated by rising gasoline prices and, although somewhat ignored in the overall calculation, food prices.  Over the years, the BLS has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard, to a compromised metric that no longer reflects the reality of consumers’ daily needs.  Within the core CPI calculation, housing represents 42% of the calculation.  Included in the housing calculation is “rent of primary residence (rent) and Owners' equivalent rent of primary residence (rental equivalence).”


Shockingly, the estimates for each of the five components of the Shelter Index are “estimated” directly from data reported by sampled households in the Consumer Expenditure (CE) Interview Survey.  The bottom line is that Ben Bernanke is basing what he sees (or does not see as the case may be) on a household survey that has, at best, a tenuous link to real time prices.


The Hedgeye call on housing is for a decline of 15-20% over the next 12 months.  Given that, it is unlikely that the Fed will turn off the spigot any time soon.  To justify that, Bernanke and friends will need to continue the pantomime act of not seeing inflation.


Howard Penney

Managing Director


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