Greek-Turkish Border Issues

As the world is tuned in to Europe again this week due to the numerous bond auctions and the region’s ever-present sovereign debt risks, an important policy decision was reached on Monday regarding the looming issue to contain the influx of illegal immigrants to Europe via Greece along its border with Turkey.


While Greece had outlined a plan over the weekend to construct a fence or wall along its 206km (or 128 mile) border with Turkey, a stretch of land where the majority of refugees enter the EU, on Monday Greece revised its plans and said it will construct a defense barrier along a 12km stretch prone to the most illegal crossings located in the north-east of the country.


Greece has already made it clear to the EU that it cannot cope with the numbers of migrants (in particular from Asia and Africa) arriving illegally. The European Commission estimates that more than 80% of illegal immigrants enter the EU via the border with Greece, and according to Frontex, the EU border agency that patrols the area, there was a 369% increase in the number of illegal immigrants crossing the northern Greek border in the nine months through September 2010 versus the previous year.


Obviously, the figures are staggering and the problem is real. As it relates more broadly to Europe, we’d expect governments to push measures to limit illegal immigration as growth forecast are strained in 2011 and 2012 and as governments push through budget consolidations (austerity) over the next years. 


While this subject can be debated from a number of angles, the German publication Der Spiegel did a wonderful job presenting commentary from various German media sources that express differing viewpoints, all of which help to frame the debate. We include this commentary below:


The center-right Frankfurter Allgemeine Zeitung writes:


"The fact that Athens is considering the construction of a massive wall along its border with Turkey is absurd, given that both are members of NATO. It gives us a foretaste of what would happen if Turkey is, one day, accepted into the European Union. Europe's doors would be thrown wide open. At the same time, no one should kid themselves that a fence would stop people wanting to cross the border."


The weekly Die Zeit writes:


"This is a trouble spot: More than 100,000 illegal immigrants crossed the border here last year. Nine out of every 10 refugees fleeing poverty arrive in the EU via this route. The placement of 200 border guards here in November has stemmed the number of immigrants but not halted it. Now around 200 illegal immigrants arrive every night, but before the deployment of European Frontex guards, that figure was as high as 450."


The center-left Süddeutsche Zeitung writes:


"The Greek plan was clearly an act of despair… There are clear signs that the erection of a fence or a new wall at the Evros border river will not solve the core problem but rather shift it elsewhere. Illegal immigration does not take place along clearly defined routes; it is controlled by those criminal gangs for whom people smuggling is a profitable business."


"Illegal immigration is closely connected to organized crime -- that is the sad reality. Mafia groups in Turkey, Ukraine and Italy run their human trafficking as an industry. Propagating illusions is a key part of the industry, illusions about what awaits an African or Asian in the rich European countries of France, Germany or England, which are the end destinations of most immigrants. In addition, there is also the fact that people smugglers rarely operate without the complicity of corrupt border officials, who gladly turn a blind eye to some things for the right money. From this perspective, the European Commission is correct to react skeptically to Athens' construction plans and to demand that the Greeks first do something to deter and discourage the traffickers."


But the law is clear: (...) asylum applications can only be made in the country of entry. And so Greece continues to cram more and more refugees into its overflowing camps..."



Clearly, Greece and the EU are just at the tip of the iceberg in determining solutions to the inflow of illegal immigrants via Greece. As Greece is now known for its excessive public debt, we thought this topic is additive to the larger assessment of Europe’s economic health and the issues surrounding the union and policy making of unequal states.


Matthew Hedrick


Playing Japan

Conclusion: Japanese equities are looking good on the short side once again. We think market expectations regarding the yen-weakness tailwind have become substantially overblown, as global fundamentals don’t support a meaningful rebound in Japanese export growth. Further, both economic fundamentals and earnings need to surprise to the upside in Japan in order to sustain this rally in a meaningful way from here.


Since the start of November, long Japanese equities have definitely been one of the top ways to play increasing global demand for US Dollars as US Treasury yields backed up. To the tune of +14.8%, the Nikkei 225 has been the fifth-best performing global equity market since 11/1, showing only marginal abatement in the face of: 

  1. Global growth slowing;
  2. Inflation accelerating globally; and
  3. Interconnected Risk compounding 

Essentially, we have an overrun equity market propped up on the hopes of accelerating US growth and yen weakness aiding Japanese export growth (JPYUSD down -3.5% since 11/1).


Playing Japan - 1


Since we unveiled our Japan’s Jugular 4Q10 Macro Theme on October 5th, we’ve been managing risk around our yen and Nikkei short positions, oscillating between the two. While we remain bullish on the USD over the intermediate-term TREND, we think market expectations regarding accompanying yen-weakness as a tailwind to Japanese exporters have become substantially overblown. Moreover, global economic fundamentals don’t support a meaningful rebound in Japanese export growth: 

  • We don’t see US economic growth accelerating meaningfully from these levels, with decelerating US consumer demand and a slowing inventory cycle becoming headwinds to US growth in 1H11 (US = 16.4% of Japanese export demand); and
  • We are seeing explicit signs of slowdowns across Asia with several key countries on deck to tighten monetary policy meaningfully throughout 1H11 (China, Hong Kong, Korea and Taiwan = 39% of Japanese export demand). 

Playing Japan - 2


One area a weaker yen can “help” Japan with is choking off domestic consumption. Japan is an island economy that imports roughly ~60% of its food needs and roughly ~107% of its crude oil needs. With world food prices at all-time highs and crude oil prices poised to remain comfortably elevated on a YoY basis, we find bullish hope surrounding a weak(er) yen to be misguided at best.


Playing Japan - 3


Playing Japan - 4


Consensus estimates for Japanese 4Q10 GDP growth are closer now to where our expectations were back in October (-0.75% QoQ SAAR). Forecasts for 1Q11 and 2Q11 are +0.50% QoQ SAAR and +1.25% QoQ SAAR, respectively. After a +14.8% equity market move in less than 2.5 months, the Japanese economy likely has to blow-out these low expectations to keep equity investors from getting nervous. It is in our expectation they won’t. Japan, an economy overleveraged to manufacturing and exports, will disproportionately feel the three-factor pain outlined at the onset of this report.


Of course we could be wrong on global growth and the Nikkei’s recent run could be pricing in stronger growth both domestically and abroad. Even still, given the overwhelmingly bullish bias in Japanese and US equity markets, earnings from 1Q11 and 2Q11 (in both markets) need to be phenomenal if this rally is to be sustained meaningfully from here.


Darius Dale


Stocks of Stalks Stumble


Position: We sold out of our LONG corn position (the ETF CORN) in the Hedgeye Virtual Portfolio after this morning’s USDA crop report for an immediate term TRADE gain.




The USDA reported today that inventories of corn in the US as of December 1st were 10.04B bushels, an 8% decrease from last year’s level of 10.90B bushels.  The agency also revised down its estimate for the 2010 total corn crop to 12.45B bushels from 12.54B bushels, taking the 2010 crop yield 5% below last year’s.


Looking ahead, the USDA expects that corn stocks will fall to 745MM bushels before the 2011 harvest begins, revised down from a projection of 832MM bushels made last month and below the consensus estimate of 779 MM bushels.  The downward revision is due to US corn production seen to come in 93MM bushels lower than previously expected in 2010-11, as a 1.5 bushel/acre reduction in the national average yield outweighs an 183,000 acre increase in harvested land.  On trade, the USDA is projecting a 5MM bushel increase in corn imports – only a minor dent in the domestic production decline.




Demand for the grain appears to be holding strong – corn consumption in the US for the three months ending in November was 6.5% greater year-over-year.  Globally, the USDA tempered its worldwide consumption estimate by 0.2% to 836.1B bushels, still a 2.9% increase year-over-year.




The report sparked corn prices – corn futures for March delivery jumped 22 cents this morning to $6.29/bushel – the highest level since July 2008.


Going Forward


We expect corn prices to trend higher this winter.  While current prices are at a two-year high, domestic stockpiles are at a four-year low – thus, the supply fundamentals are bullish for price.  Demand for the grain, which is more inelastic than supply, is sticky in the US and the rest of the world, evidenced by the USDA’s report today.  These factors, coupled with exogenous events like the extreme flooding in Australia and dry weather in Brazil and Argentina, lend to a tight floor of support for corn prices in the intermediate term.  


Stocks of Stalks Stumble - corn1


Stocks of Stalks Stumble - corn2


Kevin Kaiser


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.




January 12, 2010





  • In the latest customer service survey out of BIGresearch, and took the top spots overtaking both LL Bean and coming in at #3 and #4 respectively this year. It appears that Tony Hsieh’s customer focused culture is taking hold at the online giant even sooner than some expected.
  • Customers may actually know best.  According to a Motorola study, 55% of consumers believe that “the shopper today is better connected to consumer information than store associates”.  Might be time for retailers to step up their training or at least mandate that their employees spend more time online researching the products they sell.
  • Following in Best Buy’s footsteps, Apple has announced that it will discontinue charging for restocking fees on returned product. Given the timing with company’s new Verizon iPhone launch, waiving the 10% penalty is not only likely to help conversions, but will also be viewed favorably for the loyal Apple consumer who might still be unaware of such fees.



Sears Brings on the “Kardashian Kollection”  - The seemingly ubiquitous reality television sisters, Kim, Kourtney and Khloe, are set to unveil merchandise on a bigger retail stage when the Kardashian Kollection launches exclusively at 400 Sears doors in August with in-store shops. The brand, which is produced under license by Australian designer Bruno Schiavi’s Jupi Corp., is a critical component of Sears Holdings Corp.’s strategy to energize its contemporary clothing and accessories segment. The market will get an initial jolt at the store with the introduction of the French Connection-Sears hook-up UK Style by French Connection in March. <WWD>

Hedgeye Retail’s Take:  Just when you thought 2010 was the year of the Kardashians, 2011 starts off with yet another collaboration.  If only there was a way to merchandise every Kardashian product under one roof.


Versace to Re-Enter Japan - Versace is reentering the Japanese market and, to spearhead its development in the region, has tapped Hiroshi Saito as chief executive officer of Versace Japan. Gian Giacomo Ferraris, ceo of Milan-based Versace SpA, said he was excited about the appointment, adding he had worked with Saito in the past. Between 2007 and 2010, Saito was president of Jil Sander Japan. Ferraris joined Jil Sander from Gucci in 2004, when the German fashion house was still owned by the Prada Group, and left in 2009. “He is one of the best managers in the Japanese luxury business, and he understands Italian fashion brands better than anyone else,” said Ferraris. Saito, 60, has worked for more than 30 years in the Japanese luxury fashion market, for companies such as Ermenegildo Zegna, Gucci, Giorgio Armani, Prada and Donna Karan. <WWD>

Hedgeye Retail’s Take:  Versace’s absence in Japan was short-lived, having shuttered its 4 stores only two years ago.  Expect the re-launch to include denim, and The collection in select department stores by Fall ’11.


Collective Licensing International Signs Airwalk - Collective Licensing International is boosting its Airwalk brand.The Engelwood, Colo.-based company announced a licensing deal with Wiesner Products Inc. to license select apparel and accessories for Collective’s skate brand. Under the three-year agreement, Wiesner will hold Airwalk’s license for infant and newborn apparel, women’s, juniors and kid’s swimwear and sleepwear in the United States. Accessories including bags, headbands, underwear and socks are also included in the design and manufacturing deal.<WWD>

Hedgeye Retail’s Take: While not a needle mover, Collective’s licensing biz clearly has an eye towards growth and growing the portfolio beyond its core product categories. 


Cabela's Launches Mobile Website - Cabela’s launched an optimized mobile website that will allow customers to easily search and purchase items when they visit on popular mobile devices including the iPhone/iPod Touch, BlackBerry and Android. Key features of the new mobile website include: rich product photographs, complete product descriptions, customer-submitted product reviews, shop by category, shop by brand, store locator, e-mail and a complete site search. The website was developed by Digby on its Digby Mobile Commerce Software platform. Digby has used the same platform to develop mobile commerce sites for Toys “R” Us, Costco, The Home Depot, Lilly Pulitzer, Wet Seal, Godiva, 1800-Flowers, Golfsmith, Orvis and many other retailers.<SportsOneSource>

Hedgeye Retail’s Take:  Soon the development of a mobile e-commerce platform for any retailer will no longer be news, but rather a prerequisite for remaining competitive.


Katie Holmes is the New Face of Ann Taylor - Katie Holmes has been tapped as the new face of Ann Taylor, succeeding Heidi Klum, in the 280-store chain’s spring advertising campaign. Developed in-house by the Ann Taylor creative team and photographed by Tom Munro, the campaign breaks in March magazines. “I applaud women who are doing their best to be the best versions of themselves and who are working really hard. And I’m glad that there is a store like Ann Taylor that can offer amazing styles for the many different roles that women play,” Holmes, 32, told WWD exclusively. The media buy includes fashion magazines such as Vogue, Harper’s Bazaar, Elle, Marie Claire and InStyle. Outdoor ads will go up in major metropolitan areas. Holmes is contracted to Ann Taylor for one season. <WWD>

Hedgeye Retail’s Take: It’s tough to position this move an upgrade for the company – while Holmes may be younger, I’d argue she’s not as relevant as Klum, especially of late. Perhaps the company has arranged for Tom to be a part of future campaigns, which is more likely to catch both headlines and the company’s ‘core’ demographic attention.


Financo Panel Touts the Store - Online sales are booming and dominating the retail dialogue. But even as social networking, smartphones and mobile marketing build momentum, some executives believe brick and mortar will always be king. And what better place to stick up for the old format than the annual Financo Forum, which, on Monday night, drew a balance of veteran retailers, Web geeks, social networkers and executives from private equity, real estate, headhunting and fashion firms. “Even if we do triple the business online in the next five years, 59th Street will still be a bigger business,” said Bloomingdale’s chairman and chief executive officer Michael Gould, in a reference to Bloomingdale’s Manhattan flagship.<WWD>

Hedgeye Retail’s Take: The company can downplay the impact of its e-commerce business all it wants, but the reality is that they are investing heavily here and it’s one of the few if only growth engine they have.





Think there are no catalysts for the slot guys after this run up in the stocks?



We are now entering that time of year where the state legislatures “fix” their budgets.  Their options:  a) raise taxes, b) cut spending, c) postpone the pain via accounting tricks and debt, or d) legalize/expanding gaming.  Republicans don’t like a) and haven’t been good at b), Democrats abhor b), which leaves c) they all do all of this, and d) is a more likely option this year and next.


Dare we say that gaming is now the more politically palatable option?  In many cases, this is true.  In this politically charged atmosphere, gaming legalization/expansion may be the easiest road to raising revenues that both Democrats and Republicans can get behind.


This is not a new theory.  Historically, we’ve seen gaming expansion in times of big state budget deficits.  New and expanded markets are a big part of the 3-5 year bull thesis on slot suppliers.  With the new year upon us, we are now entering the legislative season in many states and budgets need fixing.  We think the upcoming headlines will be positive for slot suppliers.  This is why we found the recent downgrades by Goldman and JPM interesting.  With expectations fairly low and estimates looking reasonable, there shouldn’t be any negative surprises.  Headlines could drive the stocks over the near term.


We count as many as 11 states that are considering some sort of gaming expansion in 2011 and while most might not pass this year, most will expand over the next few years.  Here is the list:




Bill: HB 194--3 gaming venues--Del Pointe Resort and Racino in Millsboro; Old Georgetown harness track off Route 9; Delmar International Speedway off Route 13 in Delmar

Est Slots: 6,000

Status: House Gaming and Parimutuels Committee to decide bill hearing date

Timing: 2011

Convene Session Date: Jan 11, 2011

Adjourn Session Date: June 30, 2011



Bill: 4-5 Las Vegas-style casinos in Miami, Tampa, and 3 other locations; 8-10% tax rate; possible developers: LVS, CZR, MGM, PENN, GENTING

Est Slots: +8,000

Status: Bill sponsored by Sen. Dennis Jones (R) will be ready in late January; "50-50 chance of Legislature approving casino games this year"--Senate President Mike Haridopolos

Timing: 2011; earliest date for casino opening is 2015

Convene Session Date: Mar 8, 2011

Adjourn Session Date: May 6, 2011



Bill: 4 riverboat casinos: 3 near Chicago, 1 in Danville; 4,000 position land casino in Chicago; 1,200 slots at 4 tracks near Chicago; 900 slots each at two St. Louis area tracks; Existing casinos to expand from 1,200 to 2,000 gaming positions in 400-position increments

Est Slots: 7,000

Status: Stalled in the House on Jan 11; process would need to begin all over

Timing: June/July 2011

Convene Session Date: Jan 12, 2011

Adjourn Session Date: Meets year-round



Bill: HB 2002--casino and racetrack slots in Southeast Kansas

Est Slots: 1,500

Status: In current form, unlikely to pass given the large GOP majority in both Houses; 1) minimum casino investment at $100MM, 2) slot payout at 58%

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: Late May 2011



Bill: 3 resort casinos, 2 racetrack slot parlors (Casino resorts located in Western, central and Greater Boston areas; likely racetracks--Plainridge Racecourse, Raynham Park)

Est Slots: 5,000

Status: Passed state legislature in August but Gov Patrick disapproved of slots at tracks. Revisions expected this year.

Timing: 2011

Convene Session Date: Jan 5, 2011

Adjourn Session Date: Meets year-round



Bill: Slots at Prince George's County's Rosecroft harness racing track

Est Slots: 750

Status: Very preliminary; needs House and Senate approval

Timing: Referendum Nov 2012

Convene Session Date: Jan 12, 2011

Adjourn Session Date: Early April



Bill: Racino Act--slots each at Canterbury Park and Running Aces; Governor Mark Dayton proposed Mall of America casino

Est Slots: 4,000

Status: Sen. Dick Day (R) says the Racino Act is still shy of 20 votes in the House.

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011


New Jersey

Bill: 2 boutique casinos

Est Slots: 2,000

Status: Waiting for Gov Christie's signature

Timing: Jan/Feb 2011

Convene Session Date: Jan 12, 2011

Adjourn Session Date: Meets year-round


New York

Bill: Mohegan Sun-style casino in the Catskills; to be operated by Stockbridge-Munsee Band of Mohicans

Est Slots: 5,000

Status: Secretary of the Interior Ken Salazar has 45 days to approve or reject the gaming compact. If he takes no action, the gaming compact becomes binding.

Timing: Feb 2011

Convene Session Date: Jan 5, 2011

Adjourn Session Date: Meets year-round



Bill: Slots at 7 racetracks

Est Slots: 17,500

Status: Passed Legislature and ready for implementation but facing outside legal issues (Ohio Supreme Court/ Let Ohio Gov Kasich is looking over slot proposal and will decide whether to seek a court order to determine authority over the matter.

Timing: 2011

Convene Session Date: Jan 3, 2011

Adjourn Session Date: Meets year-round



Bill: 4 "destination resort" casinos (Dallas, Harris county, Bexas county, South Padre Island); Slots at 13 racetracks and 3 federally recognized Indian reservations;

Est Slots: +15,000

Status: Texas Gaming Association expects to release financial projections in late Jan. No planned date for introduction of bill.

Timing: 2011

Convene Session Date: Jan 11, 2011

Adjourn Session Date: May 30, 2011





News/price action callouts from restaurant space yesterday:

  • CAKE down on big volume in reaction to its pre-announcement of 4Q10 System wide comps of +0.9% the company noted 4Q10 comps would have been +2.1% ex weather/calendar-shift.
  • CMG reiterated unit growth guidance for 2011 of 135-145 units and no comments on current trends.
  • JACK noted Jack-in-the-Box and Qdoba F1Q11 comps were above 1% and 6%, respectively, and the high-end of the guidance range.  Management also affirmed its expected completion of reimaging program by year-end 2011 and refranchising by 2013.
  • YUM continues to focus on its Emerging Markets strategy reiterated its 2011 EPS growth targets.
  • The CAKE news took BWLD, PFCB and CPKI down on accelerating volume.
  • SBUX, PEET and CMG also struggled yesterday on accelerating volume.
  • SBUX price target raised from $33 to $37 at UBS.
  • MCD: Interesting story in the Wall Street Journal this morning on MCD Japan adding calorie-laden menu items to its menu.




Howard Penney

Managing Director

Daily Trading Ranges

20 Proprietary Risk Ranges

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