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Do Washington and the IMF have your back?

Washington continues to spend US taxpayers’ dollars with reckless abandon.  Who is looking out for the US tax payer? 

 

After the fact, the International Monetary Fund has conceded it could have done better in predicting Ireland’s property and banking crash that led to this weekend announcement of a $113 billion bail-out by the IMF, of which the USA is the largest contributor with a 17.67% quota. 

 

Ajai Chopra, deputy director of the IMF’s European department, who leads the mission to Ireland, said in an interview with the Financial Times: “we are a learning institution” and “there is no question that we – and other observers – could have done better.”

 

While the comments from the Ajai Chopra appear candid and forthcoming they do not instill a lot of confidence in an institution that has the responsibility of doling out US tax payer money to bail out the European Union. 

 

On November 5, 2010, Timothy Geithner (with a nod from Chairman Bernanke) agreed to increase the commitment of the US tax payer share of bailing out the world’s problems from $60 billion to $133 billion.  In total, the total size of the IMF quotas – the contributions of the 187 member states to the fund’s capital – will be doubled from $340 billion to about $756 billion. 

 

I could be wrong, but I don’t think the Treasury wrote a memo to the 2 million Americans whose unemployment benefits are expiring informing them that their benefits are less important than helping the Irish government shore up its hemorrhaging banking system.

 

Also on November 5th the IMF’s Executive Board realigned the quota shares to better reflect the changing relative weights of the IMF’s member countries in the global economy, but the USA 17.67% quota is the largest share and bigger that the BRIC’s combined.  In the most recent realignment, China jumped Germany, France and Britain in the Fund's rankings, with its quota share rising to 6.19% from 3.65%.  India is eighth, Russia is ninth, and Brazil is tenth in terms of their share.  Together, the four countries will have 14.18% of IMF quotas. 

 

This weekend, the $113 billion bailout of Ireland sheds some light on why the IMF expedited the decision to rush through a 122% increase in the size of the fund.  Ireland alone accounted for 33% of the total funds previously available.   

Today the press is making a big deal about Obama putting in a pay freeze for government employees, citing it will save $2 billion on 2011.  Where was the manic media when the head of the treasury and Federal Reserve agreed to spend an incremental $73 billion of US taxpayer money on “bail-out” money for the IMF? 

 

These savings being made by the administration need to be put into perspective because they pale in comparison to the figures being spent on bailing out other countries.  Why is there not more attention being focused on this?

 

Today’s FT provided a list of banks called the Inter Alpha Group of Banks.  They represent everything that went wrong in European banking from 2005 to 2010;

  • Commerzbank — Subprime exposure, disastrous acquisition, 2008 blow-up, government capital injection, peripheral exposure
  • ING — Subprime exposure, 2008 blow-up, government capital injection, forced break-up, peripheral exposure.
  • Allied Irish Banks – too painful to recount
  • Banco Espirito Santo — peripheral exposure
  • National Bank of Greece — peripheral exposure from hell
  • KBC Bank – subprime exposure, 2008 blow up, government capital injection(s)
  • Royal Bank of Scotland – subprime exposure, disastrous acquisition, 2008 blow-up, government capital injection
  • Société Générale — subprime exposure,  weird derivatives stuff, weirder staff management
  • Santander – Spanish property exposure, peripheral exposure

 

How does it make you feel that the US taxpayer is providing $133 billion to keep these bankers solvent?

 

Howard Penney

Managing Director 


R3: Black and Blue

R3: REQUIRED RETAIL READING

November 29, 2010

 

 

 

OUR TAKE ON OVERNIGHT NEWS

 

Yes, It’s all about Black Friday and Cyber Monday. It’s painful to get caught up in who sold more sweater sets, what video game is hot, and what parts of the country had climate that was 5 degrees cooler than a year-ago. But let’s at least review that more notable headlines…

  1. First off, ranges for all the tracking services were between 0% and 3.5% growth. In other words, there was ample ammo for both the bulls and bears to take advantage of.
  2. Let’s out this weekend into context: The Black Friday weekend accounts for at least 10 percent of holiday sales, while 40 percent of the season’s sales occur between Dec. 15 and 25. Holiday sales overall generally account for 30-40% of a retailer’s annual case flow.
  3. Per WWD, “The Consumer is Back!” With consumers shopping a lot for them-selves this past weekend, retailers optimistically believe many still need to get out and buy gifts for their families and friends. However, they cautioned that the Black Friday period shouldn’t be regarded as a true barometer for what lies ahead, and noted that the 2008 holiday season was a bust even after a big Black Friday. “There’s just no guarantee,” acknowledged Terry Lundgren, chairman, chief executive officer and president of Macy’s Inc. But Black Friday, Lundgren added, “felt good, right out of the box.” “While Black Friday weekend is not always an indicator of holiday season performance, retailers should be encouraged that a focus on value and discretionary gifts has shoppers in the spirit to spend,” said Matthew Shay, NRF president and ceo. <WWD> 
  4. “Cyber Monday is really evolving to “Cyber Everyday.”  Per NPD, “[E-tailers] are using online as the continuous sale of the season. Cyber Monday has never been the busiest online shopping day; the biggest day is 10 days before Christmas. At eBay, peak buying hours on Black Friday were 6 p.m. to 8 p.m. MST. Meanwhile, sales from eBay’s mobile apps in the U.S. nearly doubled over Black Friday 2009. Globally, eBay mobile is on track to nearly triple its sales over last year. EBay expects mobile sales to exceed $1.5 billion this year. In women’s wear, Ugg boots were popular at $99, almost 40 percent off, according to a spokeswoman. So was a Hayden cashmere sweater for $69 at Bluefly’s eBay store. But while apparel was popular, the biggest categories online mirrored those at brick-and-mortar stores: consumer electronics and toys were in strong demand. <WWD> 

Hedgeye Retail’s Take: Good or bad, it is flat-out iresponsble to draw a conclusion based on this weekend. We’ve had solid Black Friday weekends in the past that have ended very poorly. One thing we do find notable is that men accounted for a greater percent of traffic. That’s purely anecdotal – but if true then it is a good event for retail. Men tend to have longer-and more drawn out cycles in fashion.

 

JNY, Company of the Year - Keeping up with The Jones Group wasn’t easy in 2010. In a year when many fashion players were reluctant to make big moves, the company struck high-profile footwear deals with Stuart Weitzman and Brian Atwood, upped the presence of its core brands and brought new talent in to every corner of the company. “We’re becoming the place to be,” said Jones CEO Wesley Card, who recently changed the name of the 40-year-old firm from Jones Apparel Group to The Jones Group to better reflect its new, wide-ranging approach. “We wanted to keep the Jones connection and [incorporate] a modern tone,” said Card. “And it is more attractive to outsiders looking at us.” “The name change symbolizes that other categories are just as important,” added Richard Dickson, the former Mattel executive who Card hired as his right-hand man last January, a move the CEO called the biggest milestone of the year.  “I really felt I could get the company only so far with my background and expertise. We’ve always been very good at operating the business, but that’s different than managing a brand,” Card said. “Richard loves the fashion and the product ... and he was ready to take on something big.” Dickson, who serves as president of Jones and CEO of its branded business and was the architect behind the reinvention of Barbie, knows how to capitalize on good brand stories. He said he found plenty of them when he arrived at Jones, which has been built around powerhouse department store labels such as Nine West, Easy Spirit, Jones New York and Anne Klein. “This is a stable of healthy brands that have stood the test of time,” Dickson said. “They will only get stronger with the fresh energy at the company.” <WWD>

Hedgeye Retail’s Take: Apparently share performance is not part of WWD’s “Company of the Year” criteria. The fact that JNY took the cake is an embarrassment to the industry.               

 

Wal-Mart Launches Formal Bid for Massmart - Wal-Mart, looking to tap growth in Africa, said on Monday that it had made a formal offer of about 17 billion rand ($2.4 billion) for a majority stake in Massmart, the South African retail chain. Wal-Mart said its aim was to “grow its international business by increasing its exposure to emerging markets with high growth potential.” Wal-Mart is offering 148 rand per Massmart share to acquire 51 percent in the discount retailer, a 19.2 percent premium over the 30-day moving average of the company’s stock price as of September 23, the shares’ last day of trading before the approach was announced. Having obtained a unanimous recommendation from the Massmart board, Wal-Mart needs the approval of the South African competition authorities as well as 75 percent of Massmart’s shareholders. <Dealbook.NYTimes.com>

Hedgeye Retail’s Take: WMT continues to seek international growth opportunities in an effort to create greater scale and further reduce its cost base and appears to be doing just that in South Africa. Apparently Japan isn’t the only country where the retailer has stepped up acquisition activity of late.

 

Running Remains Robust - The red-hot product category is on track to finish 2010 up 20 percent over the $5 billion in sales it did last year in the U.S., according to SportsOneSource. Almost all retail segments have profited from that boom: Mall and family footwear chains have both seen sales rise sharply. And the technical channel, which sped through the recession posting gains, is poised to finish 2010 at $760 million, up about 12 percent from last year, according to the Independent Running Retailers Association, whose membership represents roughly 60 percent of the specialty store volume. <WWD>

Hedgeye Retail’s Take: With sales in technical running really starting to ramp in the 2H of 2010, we expect continued strength to carry well into 2011 with footwear retailers as the primary beneficiaries.

 

Coty Closes in on OPI - Coty Inc., the seller of perfumes by Sarah Jessica Parker and Vera Wang, is close to buying nail-care company OPI Products Inc. for about $1 billion in cash, said two people with knowledge of the situation. The two closely held companies may announce the deal by today, said the people, who asked not to be identified because the matter is private. Private-equity firms Bain Capital LLC and Advent International Corp. were among the companies that also made bids, people close to the situation said last month. OPI, founded almost three decades ago by Chief Executive Officer George Schaeffer, sells polish used in nail salons, hand-and-foot care products and body lotion. Coty has bolstered its cosmetics business with acquisitions this month, agreeing to buy skin-care maker Philosophy and Dr. Scheller Cosmetics AG. Cysette Burset, a spokeswoman for New York-based Coty, wasn’t reachable for comment, nor was Harris Shepard, a representative for OPI, which is based in North Hollywood, California. <Bloomberg>

Hedgeye Retail’s Take: Just a week after acquiring Philosophy and Dr. Scheller Cosmetics AG earlier this month, Coty remains zeroed in on the nail-care company as it continues to build out its cosmetics business. With Bain and Advent International also in the running for OPI, Coty faces a more competition this time around and likely a higher premium as well.

 

Luxury Watches See Bright 2011 -  Watchmakers are looking to keep up the momentum. Luxury watches were particularly hard hit at the start of the global financial crisis two years ago. But with the U.S. stock market up more than 7 percent this year, compensation rebounding among high earners in the financial services industry and pent-up demand bred by consumer austerity, the forecasts of brand executives are positive. The watch sector at Christian Dior, whose timepieces retail from $1,000 to $500,000, is among the encouraging indicators of strength in the luxury sector. Sidney Toledano, president and chief executive officer of Christian Dior, said the company’s watch business “is developing extremely well,” having picked up sharply since the beginning of the year. “It’s one of the key categories developing in the first nine months. We’re dedicating even more space [to watches] in our stores.” Toledano cited robust sales of Dior’s Christal range, and of limited edition watches and unique pieces carrying prices of as much as 200,000 euros, or $266,000 at current exchange rates. Demand for watches across Asia, and particularly in China, is “very, very strong,” Toledano said. Philippe Pascal, president of LVMH’s watch and jewelry group, indicated that the luxury sector will be propelled into 2011 following a year of growth. “After a very dynamic nine months, up 29 percent versus last year, we started the [holiday] season with significantly increased marketing investments on key brands in key markets, including in the U.S.A., to support Tag Heuer, Hublot and Zenith. “Retail assortments are improving for our brands and, in fact, we are out of stock on some of our bestsellers due to demand,” he said. “So we are expecting a good holiday season across the world and for Chinese New Year [early February].” <WWD>

Hedgeye Retail’s Take: We can’t make a blanket statement about all of luxury based on one company...but $500,000 watches picking up steam???

 

Comscore Results on Free Shipping - A notable study from Comscore on e-Commerce Transactions with Free Shipping indicates that free shipping was included on 41% of transactions in Q3 down from 42% last year. With Wal-Mart challenging retailers to extend the option to consumers here in Q4 in addition to fewer incentives in Q3, we suspect Q4 transactions in 2010 is likely to set a new high water market compared to last year’s 44% level.

Hedgeye Retail’s Take: Perhaps the retailers that adapted the Zappos Model realized that it is impossible to replicate profitable on a small scale. (Note, Amazon is NOT small scale).

 

Consensus Yields Demographic Shifts - The overall growth of the online population in the US is stagnating, and most future growth will come from increases in minority audiences including Hispanics, blacks, seniors and children. Hispanics are the fastest-growing segment of the US population, and eMarketer expects the Hispanic online population to grow by nearly 10 million people between 2010 and 2014. Next year, eMarketer forecasts 32.2 million Hispanics, or 62.9% of the US Hispanic population, will be online. The results of the 2010 census could push those estimates up even further. While the bureau has consistently projected strong growth within minority populations through 2050, the new figures for all races may change more than the bureau projected. The census’s open-ended questions on racial and ethnic background—including a write-in answer for filers who did not feel their background could be explained by a single check-box answer—caused much confusion and comment. It is still unclear how respondents identified themselves and their families. <emarketer>

Hedgeye Retail’s Take: Looks like one of the fastest growing consumer bases just accelerated.

 

R3: Black and Blue - R3 11 29 10

 

 


MACAU STILL TRACKING UP AROUND 40% FOR NOVEMBER

November 40% growth projection unchanged.

 

 

Macau table game revenues were HK$14.8 billion through this past weekend.  Including two more days of revenues and a full month of slot revenue, we are keeping our projection of HK$16.2-16.7 billion for November.  This represents 37-41% growth over November of 2009. 

 

In terms of market share, LVS continues to move higher after a dreadful start, but 15% is still well below recent levels of 19-20%.  Surely, low hold has played a part.  MPEL has moderated following a strong start to the month and is back down to 14.2%.  Wynn’s share is a healthy 16.4%, a run rate they are undoubtedly happy with following the last few months of disappointing market share.

 

As always, we will have the full breakout (Mass, VIP, slots, etc.) later this week.

 

MACAU STILL TRACKING UP AROUND 40% FOR NOVEMBER - macau133


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Hedgeye Editorial: "1995 Revisited"

Post Thanksgiving To Do: Show more client editorials from the Hedgeye Network

 

KM Reply:

 

On the timing of the debt/deficit commission - fair point - someone always knows something... but in this case, I think what you and I know is what any rational analyst is capable of concluding. This commission has been in motion for a while now and I think they are simply reflecting upon what we talk about every day - they know what we know.

 

Hedgeye Editorial

To: Keith R. McCullough

Subject: 1995 Revisited

 

Keith - I did not run a hedge fund in 1995 but I sat across the desk from someone who did. 

 

Upon reflection here are my thoughts on the asset allocation (sell bonds and move to stocks) question.  The answer to the question revolves around the composition of bond exposure and the collateral upon which it rests. 

 

As we now know, many strategies employ leverage and leverage requires collateral.  To the extent people have no leverage, own bonds outright and can re-allocate into stocks I see the "rotation" argument.  To the extent there is leveraged derivative composition (swaps etc) to create bond exposure and a leveraged equity portfolio is the collateral upon which the counterparty has access by virtue of the swaps - you have margin calls.  I suspect that reducing leverage impacts the prices of all underlying collateral - asset class not withstanding - (we have seen this movie before).

 

Second point - the timing of this Debt Commission "draft release" needs some scrutiny.  Why the rush?  Possible answers - Could they know how shaky the foundation of low interest rates is to the status quo?  Could they have insight about the need for other G-20 members to see a framework of a plan?  By virtue of intensely studying the issue, they know something and the timing is an expression of that knowledge...

 

-Anonymous Hedge Fund PM


WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 0 of 10 improved / 5 of 10 worsened / 5 of 10 unchanged
  • Intermediate-term (MoM): Positive / 1 of 10 improved / 7 of 10 worsened / 1 of 10 unchanged
  • Long-term (150 DMA): Negative / 0 of 10 improved / 6 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - summary

 

1. US Financials CDS Monitor – Swaps increased across domestic financials last week.  Only PMI saw swaps come in; spreads increased for the other 28 reference entities.  

Tightened the most vs last week/widened the least: PMI, MTG, JPM

Widened the most vs last week: GS, COF, MBI

Tightened the most vs last month: SLM, MTG, RDN

Widened the most vs last month: CB, TRV, MBI

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - us cds

 

2. European Financials CDS Monitor – In Europe, banks swaps blew out ahead of the Irish bailout.  Swaps increased for all 39 reference entities.  

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - europe cds

 

3. Sovereign CDS – Sovereign CDS rose 47 bps on average last week.  Ireland and Portugal improved substantially, while Greece continued to worsen, pushing back above its August highs.   

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose last week, closing at 8.44 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - high yield

 

5. Leveraged Loan Index Monitor – The leveraged loan index put in its third consecutive down week, falling 2 points versus the previous Friday.   

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - lev loan

 

6. TED Spread Monitor – Last week the TED spread fell slightly, closing at 14.2 bps.

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index fell 4.5 points, closing at 14.4 on Wednesday, the last day for which pricing was available.

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - joc

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields continued to rise, ending the week 21 bps above last week’s close.

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads closed the week at 181 bps.     

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - markit

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index rose slightly, closing at 217 versus 215 the prior week.  

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - Baltic dry

 

11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1.9% upside to TRADE resistance, 0.7% downside to TRADE support. 

 

WEEKLY FINANCIALS RISK MONITOR: STILL NEGATIVE ACROSS ALL THREE DURATIONS - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: SLOTS; UNEMPLOYMENT UNCHANGED; TAIWAN IVS

The Macau Metro Monitor, November 29th, 2010

 

MORE GAMING REGULATIONS ON SLOT MACHINES Macau Daily News

Secretary Tam said drafts laws concerning plans to relocate slot machine parlors from residential areas and to raise the casino age limit to 21 have already entered the legislative process.  The slot machine relocation draft is currently being deliberated in the Executive Council.  In addition, lawmaker Melinda Chan Mei Yi suggested prohibiting casinos from sending promotional text messages to Macau residents and the operations of casino courtesy buses. 


EMPLOYMENT SURVEY FOR AUGUST-OCTOBER 2010 DSEC

The unemployment rate for August-October 2010 remains at 2.9% (9,400 people), unchanged from that of July-September 2010.  Total labour force was 330,000 and the labour force participation rate stood at 71.7%.


TAIWAN PROPOSES INDIVIDUAL TRAVEL FROM MAINLAND CHINA Xinhua News

Officials from Mainland China and Taiwan have discussed the feasibility of allowing individual tourists from the mainland to visit the island. Taiwan officials hope the new policy will first be applied to business travelers from Beijing and Shanghai, with maximum 300 individual tourists per day.  The Taiwan Affairs Office of the State Council forecasted Taiwan to receive some 1.2 million Mainland tourists by the end of 2010. Currently, Taiwan allows mainland tourists to visit the island on package tours for stays of up to 15 days.


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