R3: DECK, TBL, Fila, MTB Bill


December 1, 2010





  • In the aftermath of Black Friday, one statistic reported that some 7,000 people lined up at 4 a.m. outside of Macy's Herald Square flagship this year compared to 5,000 last year. Consistent with one of the key trends over the weekend was that men seemed to make up a considerable portion of the incremental buyer base.
  • In an effort to raise money for World AIDS Day (today), several celebrity Tweeters including Kim Kardashian, Justin Timberlake, Alicia Keys, and Lady Gaga are embracing the concept that a statement of silence can in fact be louder than words by temporarily quitting twitter for the day. The celebs will begin tweeting again once they've raised $1mm in donations. Fortunately for Skechers, Kim’s recent endorsement deal isn’t effective until January at which point we expect the star starts pumping/tweeting toning product to her 5.5 million followers.
  • While the majority of retailers offered various promotional deals to entice shoppers on Black Friday -- even if not visible in the form of front window displays, Lululemon was one of the few that did not. Instead, the leading yoga-apparel retailer offered a Black Friday Boot Camp at select locations, which didn’t appear to visibly slow traffic relative to its promotional peers.
  • In perhaps what could be viewed as another sign of increased online traffic over the weekend, JCP's e-commerce site crashed for more than 2-hours on Friday due to visitor traffic. More importantly, the retailer's site was up and running in time to capture Cyber Monday shoppers that hit sites in droves though it doesn't help the company's standing as #16 on Internet Retailers annual list.  Then again, its e-commerce effort might just flat-out stink.



Ugg Signs Tom Brady - Ugg Australia is going for the men’s vote. The boot brand has tapped three-time Super Bowl champion Tom Brady for its first men’s marketing campaign. Under the multi-year deal, the New England Patriots quarterback will be featured in a global marketing campaign, starting in fall ’11. Brady also will consult on products for fall and future collections. The Ugg brand, owned by Deckers Outdoor Corp., already includes a men’s offering with a full line of cold-weather and casual shoes, boots, slippers, outerwear and accessories. Success in the women’s category, however, has helped the brand achieve $800 million in predicted sales for 2010. <WWD>

Hedgeye Retail’s Take: In the past month alone, Brady has signed with an athletic brand (UA) and a casual/lifestyle brand (DECK). Is a fashion brand endorsement pending, or will Brady let his better half represent the household there? Either way, it synchs with our view that the strong Athletic R&D Cycle is also manifesting itself in expensive endorsements. Ultimately who wins? FL, FINL, DKS, HIBB, etc…


New TBL Hire - The Timberland Co. appointed Anne Cavassa as senior director of North America merchandising. Prior to joining Timberland, Cavassa was a consultant at Ibex Outdoor Clothing where she was responsible for guiding the company in transition from wholesaler to multi-channel retailer.  Previous to Ibex, she was general manager at Nike and launched Nike's new retail concept in the U.S. Preceding Nike, Anne was with Eastern Mountain Sports where she was the director of merchandising responsible for leading strategic product shifts across apparel, outerwear, footwear and hard-goods. Before Eastern Mountain Sports, she had appointments with Reebok International Ltd., Tommy Bahama and Eddie Bauer that encompassed product line management as well as design and development. <SportsOneSource>

Hedgeye Retail’s Take: Worthy of calling out for two opposing reasons, 1) Cavassa comes from one the premier domestic wool-based brands and Smartwool’s biggest competitors (future M&A candidate?). But on the flip side, 2) her experience was at Nike Retail (while it was not profitable). She also had stints at Reebok, Eastern Mountain Sports, Tommy Bahama, and Eddie Bauer.  We have to take note of the job-hopping factor into some questionable brands.


Fila to Use Real Women in Toning Apparel Campaign - Fila USA said it plans to feature real women as part of the launch campaign for the company's new Body Toning System fitness apparel collection. Original plans for the print and online campaign called for two professional models and one real woman, but the positive results of the New York City area casting call of non-professional models ages 25 - 50 prompted executives to consider a campaign that would feature just the local area finalists. <SportsOneSource>

Hedgeye Retail’s Take: Translation = ‘real women’ aren’t as expensive as professional models, but could have just as powerful an impact on a campaign as a hired gun.


Sport Brands Pursue Duty Relief in Second MTB Bill - The House Ways and Means Committee has posted a draft of a second Miscellaneous Tariff Bill (MTB), which proposes to extend or created temporary duty relief for more than a dozen sporting goods products and hundreds of chemicals and other inputs. As in the case of the earlier MTB passed in July, the Miscellaneous Trade and Technical Corrections act of 2010 would make duty relief retroactive to Jan. 1, 2010 for some products. Each individual bill is vetted by the International Trade Administration to ensure that lowering tariffs will not cause injury to any domestic manufacturers. Even so, leaders of the Republican Party have vowed to block any MTB as part of their pledge to oppose earmark legislation and balance the federal budget. The bill also includes the Affordable Footwear Act, which Outdoor Industry Association and other sporting goods trade organizations have been trying to pass since 2007. <SportsOneSource>

Hedgeye Retail’s Take: Consistent with the MTB Bill passed in July, the second iteration looks to extend duty relief for multiple inputs that primarily benefit sporting goods retailers. A notable new twist in the most recent Bill is that it includes the Affordable Footwear Act (AFA), which would be a substantial incremental positive for domestic footwear players. With Republicans standing firmly in opposition, there’s a long road ahead here, but with the inclusion of the AFA one that bears watching.


Lotte to Make Final Offer for Matahari's Stores, Competing With Carrefour - Lotte Group, the parent of South Korea’s biggest retailer, will make a final offer for PT Matahari Putra Prima’s hypermarkets to compete with Carrefour SA in Indonesia. “We’ve come a long way and we’ll make a final bid,” Hwang Kag Gyu, executive vice president of international and new business planning at Lotte, said in an interview yesterday. “There’s ample liquidity so funding won’t be a big problem" The purchase would give Lotte as many as 49 of the combination department store-supermarkets in an economy forecast to expand 6 percent this year. Units of Seoul-based Lotte, whose assets include petrochemical operations, are expanding in China, Vietnam, Indonesia and Russia to tap faster growth and rising affluence in developing markets. Matahari may sell most or all of its food-retailing business, which may be valued at $700 million to $1 billion including debt, people with knowledge of the deal said earlier this month. Wal-Mart Stores Inc. and French retailer Casino Guichard-Perrachon SA are among the retailers that have looked at Jakarta-based Matahari’s assets, according to the people. <Bloomberg>

Hedgeye Retail’s Take: With a store in nearly every mall and plaza in Indonesia, Matahari will likely draw more than just one bid as it looks to exit its retail business - particularly with growth markets in short supply for global retailers.


Time Inc.'s New Revenue Stream, Online Retail - Jack Griffin’s name has become synonymous with the phrase “new revenue stream.” And just a few months into his new gig at Time Inc., the chief executive officer now has one under his belt at InStyle with the launch of StyleFind, the first stand-alone shopping site to launch from a magazine. The fashion and beauty site, which makes its debut today, will live under the shopping channel on, but it will be run by a new crop of editors hired by InStyle. It features 150 retailers — including Saks Fifth Avenue, Neiman Marcus, Nordstrom, Net-a-porter, Gap, J. Crew, Mulberry, Topshop and Mango — and more than 2,000 brands that managing editor, Ariel Foxman, said are consistent with InStyle. “It will be like shopping with one of our magazine editors,” said Foxman. “The experience is edited and the search function actually works. If you search for bags with a chain, you will actually see that, but in different price points and brands.” <WWD>

Hedgeye Retail’s Take:  Just weeks after Google launched comes Time Inc.'s - another brand aggregator that provides a touch of fashion guidance. The most notable callout here is that it took this long to bridge the gap between physical stores and individually branded sites in the wake of flash-sale discount site success over the past year.


Gilt Goes Full Price - With a men’s business that now exceeds $100 million in sales, Gilt Groupe is plunging into a permanent full-price men’s business. The company is targeting a July launch to coincide with the release of pre-fall collections. It will offer apparel, accessories, athletic gear, gadgets and more and will include editorial content, as well.  The mix of brands will be similar to that currently found on Gilt Man, but items on the full-price site will be available for an entire season rather than for a finite period under the company’s current flash-sales model. Gilt executives would not reveal names of vendors who will be featured on the site, but John Auerbach, who has been named president of the full-price initiative, said it will be “a more curated version of what we offer now on Gilt Man.” He said 75 to 100 brands are expected to be featured. Over the past six months, Gilt Man has offered 10 full-price sales and the results were “tremendous,” Auerbach said, making this “the natural next step.”. <WWD>

Hedgeye Retail’s Take: After announcing that it will explore an apparel line of its own, the private sale pioneer is now looking to bridge the gap between store and discount site. As highlighted above, competition has been slow to materialize in the space, but we wonder how much of the Gilt's existing business it might cannibalize in the process.  Also, this will be the real test as to how scalable this business is.


Supreme Court denies Tiffany review in eBay counterfeit case - In a move with implications for e-marketplaces that sell products from independent sellers, the U.S. Supreme Court today denied jewelry retailer Tiffany & Co.’s request for reconsideration of its trademark infringement lawsuit against eBay Inc. Tiffany sued eBay in 2004, alleging that the e-marketplace company failed to prevent sales on of counterfeit versions of Tiffany jewelry. A federal judge in New York ruled in favor of eBay, noting that eBay couldn’t be held liable for the actions of independent sellers, and a federal appeals court upheld that ruling. <Internet Retailer>

Hedgeye Retail’s Take: The 6-year battle comes to an end...finally. With the ruling in favor of eBay, Tiffany will have to continue to bear the cost of policing 3rd party distribution sites itself. With customs now helping brands shoulder the cost of patrolling counterfeit imports, it looks like it will be up to the brands to police domestic distribution.


Cyber Monday Search Activity Jumps - Consumers are increasingly accustomed to scoring bargains on the day after Thanksgiving, also known as Black Friday, and the Monday following Thanksgiving weekend, frequently called Cyber Monday, says Dan Schock, Google Inc. retail industry director. That’s why searches for Black Friday on Thanksgiving and the following day were up 10%, year over year, and in the seven day period leading up to the Monday after Thanksgiving, searches for Cyber Monday and “Cyber Monday sales” are both up about 20% year over year, according to Google. Consumers first began searching for Black Friday in late August, says Schock. <internetretailer>

Hedgeye Retail’s Take: Evidence of two key factors: 1) Cyber Monday is relatively new to customers so they are less familiar with what to expect, and 2) that consumers are getting increasingly savvy to online research and find the best deals possible. Not surprisingly, the greatest increase in search came in the toy category suggesting that consumer's tolerance for blindly searching for in-stock 'it' items may be coming to an end.


November Fiber Price Sheet Update - The last Tuesday of every month, WWD published the current, month-ago and year-ago fiber prices. Prices listed reflect the cost of one pound of fiber or, in the case of crude oil, one barrel. <WWD>

Hedgeye Retail’s Take: Cotton isn't the only fiber up big year-over-year, but at 2x we should expect 2011 to be the year of alternative fabrics and blends.


R3: DECK, TBL, Fila, MTB Bill - R3 11 30 10



The Macau Metro Monitor, December 1st, 2010


According to a source, MGM China Holdings Ltd will target its IPO for 1Q 2011 at the earliest.  During its 2Q CC, CFO Dan D'Arrigo said the company hoped to list by the end of 2010.  Sources say BNP Paribas, Bank of America-Merrill Lynch, JPMorgan Chase & Co. and Morgan Stanley are the bankers on the deal, which seeks to raise about US$500 million.



In November, Macau’s casinos took in $17.354 MOP BN (US$2.17 BN), up 42.1% YoY.

Surviving The Future

"Every organization must be prepared to abandon everything it does to survive in the future."

~ Peter Drucker


After closing down for the 3rd consecutive day, the S&P500 ended up closing down -0.23% in November, doing less-bad than both the Nasdaq Composite and Dow Jones Industrial Indices which were down -0.37% and -1.01% for the month, respectively.


If you were long virtually anything other than the US Dollar (best major global asset class allocation for November of 2010, closing up +5.2%) in the last 3 weeks of November, you probably felt some pain. I did. The MSCI All World Index underperformed US Equities closing down -2.2% for the month and, depending on which Fixed Income strategies you had assets allocated to, November probably didn’t feel very good either.


So where do we go from here?


GAME ON: It’s DAY 1 of a new month and the perma-bulls are blasting out of the box, taking US futures up to another lower-long-term-high, repeating what they’ve said since the October 2007 peak – the world is “awash with liquidity” and “don’t fight the Fed.”


For us, it’s always a game of US versus THEM. Yes, we have a culture of picking fights. But we pick the ones we expect to win. When we lose, we are prepared to abandon almost every theoretical and qualitative assumption in our macro model.


It’s critical to keep them (Wall Street consensus) in the game. Without them, I don’t know how we’d go about Surviving The Future.


For them, it’s going to be very interesting to see who survives getting wiped out the 2nd time around. Sure, the world is “awash” with liquidity, but it’s also laden with sovereign debt. Absolutely, “fighting the Fed” was painful in October of 2007 and 2010, but it’s also been the fight worth fighting in both Novembers of those respective years. You have to know what you are fighting for. We are fighting the academic dogma of the Fiat Fools.


So let’s throw down and get at it this morning…


The #1 Headline on Bloomberg (most read) is: “Contagion May Force EU to Expand Arsenal To Fight Debt Crisis”


TRANSLATION: Predictably, the Big Government Interventionists (them) are out in full force this morning trying to get investors to believe that the solution to this European Sovereign Debt disaster = QE/EU.


The quants @Hedgeye are already tweeting about this phenomena of buy-and-hope – they’ve interpreted this academic solution as:


QG = QE/EU = Inflation


I know. This is the kind of quant that we spend hours on, laboring throughout the night. It’s amazing that we get any sleep over here at all. But it’s always encouraging to wake-up to real-time market prices and global activity that supports or refutes our case.


Here’s the real-time, globally interconnected, market response to QE/EU:

  1. Asian Equities UP
  2. European Equities UP
  3. US Futures UP

Oh wait, that’s just the stock market response. Silly Mucker.

  1. Fiat Euro UP
  2. Commodities UP
  3. Bonds DOWN

Right, right…


So, after getting powdered for the last 3 weeks, stock markets around the world have a dead cat bounce to lower-highs (on low volume), global inflation reignites to the upside (Oil is bullish TRADE and TREND at $85.10, Gold is blasting higher to $1392, and Copper is up +2.4% in a straight line), and the real global contagion on risk managers minds remains a flashing red light in the bond market.


All the while, Chinese stocks (which are down more than -10% in the last month and down -13.8% for the YTD) closed up a whole 12 basis points after China reported its highest INPUT PRICE number (73.5) since June of 2008. Yes, like QG (Quantitative Guessing) = QE/EU, the Chinese see inflation.


Chinese interest rate swaps just had their biggest melt-up since April of 2007 (+58 basis points = biggest monthly move in 3 years). That’s an explicit signal that China gave us then as it is now. It’s also similar to the one they gave us on global inflation in June of 2008 when The Ber-nank said he saw no inflation with $150 oil. China is going to continue to raise interest rates to fight Fed and ECB stoked inflation.


During the recent -3.7% correction in US Equities (from their November 5th high of 1225 on the SP500 when we had 15 SHORTS), I’ve pared back our SHORTS in the Hedgeye Portfolio to 9 positions. I’ll be looking to re-populate our short book on today’s strength. My immediate-term support and resistance lines for the SP500 are now 1173 and 1189, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Surviving The Future - div

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.


TODAY’S S&P 500 SET-UP - December 1, 2010

As we look at today’s set up for the S&P 500, the range is 16 points or -0.64% downside to 1173 and 0.72% upside to 1189.  Equity futures are trading back above fair value following Tuesday's choppy and ultimately weaker session. Markets in Europe are trading higher but braced for the results of a small yet important Portuguese 350 day bill auction which if unsuccessful may result in renewed pressure on the single currency and further widening of sovereign spreads. Economic data includes ISM manufacturing, ADP Employment, US auto sales, with the Fed's Beige Book in play.

  • Copart (CPRT) 1Q EPS inline, rev beats est.
  • Corinthian Colleges (COCO): Former CEO Jack Massimino named CEO effective immediately, replacing Peter Waller
  • Enterprise Products Partners LP (EPD) will sell 10.5m units representing partner interests and use the proceeds to cut debt
  • Health Care REIT (HCN) plans to sell 9m shares
  • OmniVision Technologies (OVTI) forecast 3Q profit above est.


  • One day: Dow (0.42%), S&P (0.61%), Nasdaq (1.07%), Russell 2000 (0.67%)
  • For-the-month: Dow (1.01%), S&P (0.23%), Nasdaq (0.37%), Russell +3.36%;
  • Quarter-to-date: Dow +2.02%, S&P +3.45%, Nasdaq +5.47%, Russell +7.52%
  • Year-to-date: Dow +5.54%, S&P +5.87%, Nasdaq +10.10%, Russell +16.25%
  • Sector Performance: Tech (0.99%), Healthcare (0.92%), Financials (0.55), Consumer Spls (0.46%), Industrials (0.24%), Energy (0.35%), Consumer Disc (0.22%), Utilities (0.13%), Materials 0.06%.


  • ADVANCE/DECLINE LINE: -964 (-464)  
  • VOLUME: NYSE - 1536.22 (+66.24%)
  • VIX: 23.54 +9.34% - YTD PERFORMANCE: +8.58%
  • SPX PUT/CALL RATIO: 2.12 from 2.24 -5.07%  


  • TED SPREAD: 13.80 -0.710 (-4.894%)
  • 3-MONTH T-BILL YIELD: 0.17% -0.01%  
  • YIELD CURVE: 2.36 from 2.32


  • CRB: 301.41 -0.49%
  • Oil: 84.11 -1.89% - NEUTRAL
  • COPPER: 382.55 +1.54% - BEARISH
  • GOLD: 1,388.42 +1.56% - BEARISH


  • EURO: 1.3038 -0.50% - NEUTRAL
  • DOLLAR: 81.195 +0.45%  - BULLISH




  • European markets opened higher and extended gains before becoming range bound slightly below the session highs. The FTSE100 and CAC gained as much as +1.2%, the DAX +1.5% as constructive economic data out of China and India aided sentiment.
  • European economic data was broadly supportive.
  • Peripheral markets bounced after recent losses and credit markets improved despite S&P putting Portugal's sovereign credit rating on negative watch yesterday. Market participants await the results of Portugal's T-bill auction. Banks up +3.2%, insurance +2.2% and basic resources +2.0% lead sector gainers.
  • The retail sector (2.3%) is the only sector trading lower led by Carrefour down (8.3%).
  • UK Nov house prices +0.4% y/y vs consensus +0.5%
  • German Oct preliminary retail sales +2.3% m/m vs consensus +1.3%
  • Eurozone Nov final Manufacturing PMI 55.3 vs prelim 55.5
  • France 57.9 vs preliminary 57.5
  • Germany 58.1 vs preliminary 58.9
  • EuroZone 55.3 vs preliminary 55.5
  • UK Nov Manufacturing PMI 58.0 vs consensus 54.6


  • Nikkei +0.5%; Hang Seng +1.1%; Shanghai Composite +0.1%
  • Asian markets ended the day higher after being mixed at lunch.
  • South Korea went up when its November PMI rose on the back of US numbers that beat expectations. Carmakers went up, while tech stocks were mixed.
  • Hong Kong was higher in low volume.
  • After remaining flat in thin trade on a stronger yen and weakness in China, offset by bargain hunting, for most of the day, Japan rallied to a rise by the close.
  • China was flat in extremely low volume, due to a cash squeeze and concerns about inflation data due next week. Retail investors avoided commodity, banking, and transportation shares, seen as vulnerable in case of policy tightening.
  • Australia rallied to finish flat after declining on lower-than-expected economic growth.
  • China November PMI 55.2 vs 54.7 seq.
  • Australia Q3 GDP +2.7% y/y vs survey +3.5%.
  • Japan October housing starts +6.4% y/y. 

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends














Macau doesn’t disappoint with November YoY growth of 42%.



The month of November finished a touch stronger than expected and total gaming revenues slightly exceeded the top end of our HK$16.2-16.7 projection range.  The following table shows the HK$ total gaming revenue for November for BOTH tables and slots. The market share numbers are for tables only, but slots shouldn’t make a material difference to percentages.  We don’t yet have the breakdown between Mass, VIP, Rolling Chip, and Slots.




We believe that Wynn had an exceptionally high VIP win percentage - greater than 3.4%.  LVS probably held below 2.5%.  MPEL’s share rebounded in the last few days.

Squeezing Japan’s Jugular

Conclusion: Japan’s economy continues to underperform its regional counterparts and the factors driving our Japan’s Jugular thesis remain supportive. We welcome the Nikkei 225’s recent strength as a shorting opportunity within the context of this bearish fundamental backdrop.


Position: We are not currently invested, but remain bearish on Japanese equities and bearish on the Japanese yen for the intermediate-term TREND.


Strategy Update


Regarding the title, the pun is most definitely intended, as Japanese equities have experienced a monster short squeeze since the dollar bottomed on November 4th. The Nikkei 225 has outperformed nearly every other major world equity market since then (with the exception of Ukraine and Bangladesh) to the tune of +6.2%, aided by a positive 0.72 correlation with the U.S. dollar in that time period.


Squeezing Japan’s Jugular - 1


Given that persistent yen strength was outlined as one of the key drivers in our bearish Japan’s Jugular thesis (email us if you need a copy of our 4Q10 Macro Themes presentation), it comes as no surprise that Japanese equities have rebounded off their lows alongside weakness in the yen (JPYUSD down -3.8% in the above time period).


Squeezing Japan’s Jugular - 2


With the dollar trading comfortably above its TREND line of support of $79.71, it appears the Bullish Buck Breakout has some legs and is supported by a confluence of supporting factors – American Austerity, Sovereign Debt Dichotomy, and Quantitative Guessing backlash.  Given this setup, we anticipate further weakness in the yen from here over the intermediate-term TREND.


So that must equate to a bullish outlook on Japanese equities over the same duration, right?




In a report published on 10/26 titled: Japan’s Jugular Continues… Don’t Buy the Hope, we outline three reasons why Japanese equities will continue to look attractive on the short side once we sift through near-term strength associated with yen weakness. Those reasons are: 

  1. The Consumption Cannonball looks to conquer an ailing U.S. consumer in 4Q10 and 1H11 (the U.S. is Japan’s second largest export market at 16.4% of total exports);
  2. Tightening in China and elsewhere in Asia as inflationary headwinds brought on by QG force economies throughout the region to rein in speculative growth via rate hikes, tax hikes and price controls (China, Korea, Taiwan and Hong Kong combine for ~39% of Japan’s export demand); and
  3. Rising tensions with Asian rivals China and Russia (note: this looks to have taken a back seat, but the damage to Prime Minister Naoto Kan’s approval rating has been done – 35% in November vs. 53% in October). 

In addition to those factors, the bulk of global economic data continues to be supportive of the Hedgeye Global Macro outlook, which suggests: 

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

Under this setup, we remain extremely cautious on equities as an asset class, in general, over the intermediate-term TREND.


While we’d certainly like to see an additional 2-3% short squeeze in the Nikkei 225 before we re-short it, the reality is that it just broke its TREND line overnight. Should it fail to close above 10,001 in the immediate-term, last night’s (-1.9%) decline is an explicitly bearish quantitative signal.


Squeezing Japan’s Jugular - 3


Macroeconomic Update


Overnight, Japan released its October economic data and, by and large, the slowdown continues.


Export and Industrial Production growth slowed again in October, coming in at +7.8% YoY and +6.1% YoY, respectively. The comps only get tougher from here…


Squeezing Japan’s Jugular - 4


As we show in our Japan’s Jugular slide deck, Japan is an economy that is highly levered to manufacturing and exports for growth and employment. Considering, it’s not a conceptual leap to see Japan’s Unemployment Rate tick up for the first time since June, as the economy shed 180,000 jobs – the most since May.


Squeezing Japan’s Jugular - 5


A second-derivative effect we outline is that the pain felt by the manufacturing sector would eventually reverberate throughout the rest of the Japanese economy, causing consumer confidence and spending to decline. In October, both Consumer Confidence and Retail Sales growth continued to slow, coming in at 40.9 and (-0.2%) YoY, respectively.


Squeezing Japan’s Jugular - 6


Going forward, it’s important to keep in mind that stimulus measures and policy changes helped buoy the Japanese consumer in 3Q10, including a subsidy for energy-efficient cars and a tobacco tax hike scheduled for October 1st. Both programs pulled forward consumer demand to the tune of a 0.7 point contribution to 3Q10 GDP, after having no contribution from private consumption in 2Q10. In addition, Japan’s hottest summer in over a century fueled demand for cooling products.


These tailwinds helped boost 3Q10 GDP growth to +3.9% QoQ SAAR and their absence will create a drag on growth in 4Q10 and potentially into 1Q11 – just around the time bearish 4Q10 economic data is being reported in globally. Japanese equities have nowhere to turn but to the hopeful promise of additional stimulus. As we have shown, stimulus won’t matter when it’s all said and done; it merely helps the Nikkei rally to lower highs as it has done for much of the past two decades.


Squeezing Japan’s Jugular - 7


FYI, Japanese equities haven’t always gone up during periods of yen strength historically. Throughout the past twenty years, the inverse relationship has waxed and waned over various durations.


Squeezing Japan’s Jugular - 8


Needless to say, Japan’s chin is exposed.


Darius Dale


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