Eye on Russia and Chicken

More details regarding the importance of Russian exports to the U.S. chicken producers.

Volcker on the tape - he's an Obama boy now, dont forget!

John McCain has never been accused of being an economically intelligent man, and Paul Volcker never a dumb one. Volcker is speaking at a conference in Canada right now, issuing comments about the US financial system being "broken", and that US economic growth will slow to levels not seen since the Depression.

I don't disagree with this. Obama won't either. Expect this rhetoric to start running full steam ahead into the perpetually bullish Wall Street narrative. McCain better have his chin strap on – debating Warren Buffett and Paul Volcker on the economy won’t be a no contact sport.

Eye on Leadership... Moammar Kadafi?

Bizarre photo for the day. Now that Libya is back in good graces with the West, we will start seeing this cat in the news again. He looks like he is dressed for a Morris Day and The Time reunion show.

Andrew Barber

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Vietnamese Dominos

The highest inflation rate in 16 years out of Vietnam should not be ignored. The dominos could very well fall in a path that leads to footwear bankruptcies and M&A.

Last night, Hanoi government officials reported 28% growth in inflation, and cut economic growth estimates to 6.5-7% from 8%. “Our goals are to achieve 7% economic growth, and inflation at 25%.” Gee guys, thanks for aiming high in the most stagflationary environment Vietnam has seen since the mid-1990s.
  • The good news for the footwear and apparel industry is that exposure here is not huge – only 4% of US consumption is sourced in Vietnam. Not the case for Nike and Adidas, however. These guys have more diversified manufacturing bases, but source roughly 1/3 of their respective footwear in Vietnam (Nike is 33%, and Adi is 30%).
  • This scares me big-time. And it’s got to be scaring the two largest footwear companies in the industry. This will pressure margins in calendar ’09, and more importantly, it will cause disruption for the little guys that they’re not currently planning for.
  • Think about it… Nike wakes up one morning and realizes that it needs to pay an extra 20% to cover wages in Vietnam. Yes, it will make its partner there whole to some degree. But it will also find capacity in China, Indonesia and Thailand that is currently occupied by smaller competitors, and muscle them out of their space.
  • This is bad for Nike and bad for Adi, but will not destroy their margins. This will take margins away from everyone else in the industry, who will try as hard as possible to push the pain off to the next guy in line. This is when marginal brands and retailers take a massive hit (Skechers, Brown Shoe, DSW, and even Dick’s), the big guys hang in there and print numbers that are ‘less bad’ than the group, and good brands with poor management teams get taken out (Timberland).
  • This space is going to be fun…
Don't ignore the inflation trend in Vietnam!
Nike and Adidas are well diversified (away from China) but are over-exposed to Vietnam for sourcing product.

And the Unemployment River Card Is... A Six.1

On 8/21/08 I posted a note titled "Get Ready For A 6-7% Unemployment Rate "... so this morning's "surprise" to the Street is not one to you or to us. Accountability and Transparency is paramount to our research promise.

This morning's unemployment rate was printed at +6.1%. This is a new 5 year high. No, this is not good - but it's not a new revelation to people who aren't living Wall Street's narrative fallacy that the global market contagion wouldn’t spill over to Main Street.

We are still early innings of an accelerating unemployment cycle. This isn't just about the "credit cycle". See the "Trend" in US jobless claims below. Math is hard to debate.

Liquidity Watch: Revisiting the TED Spread Charts

Spreads continue to widen. This isn't new - people are just being forced to pay attention to it. Andrew Barber updated both the 6 month and 10 year charts of the TED Spread below (3 month US Treasuries vs. 3 month LIBOR).

Early Look

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