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THE M3: MPEL; MGM IPO; JACOBS; VISITOR ARRIVALS; S'PORE CPI; SMOKING

The Macau Metro Monitor, February 23, 2011

 

MPEL DOES OKAY, FOR NOW Intelligence Macau

IM believes Galaxy Macau, when it opens in two months or so, will take a bigger share of first-time visitors away from CoD than Venetian, even though Venetian has recently been tightening up on its rebates and rewards.  IM also thinks Venetian's marketing of its rewards club in the coming months will further pressure CoD.

 

According to IM market data, Cotai is different than the peninsula in that proximity of casinos is not a factor.  If a visitor is bored after visiting CoD or Venetian, he/she will more likely get on a shuttle bus back to the peninsula than to walk across the road to a rival casino on Cotai.

 

But IM is optimistic on the longer term outlook for MPEL given Lawrence Ho's leadership and his wise decision to stay out of the Ho drama.


MGM IPO 'BUBBLING ALONG': GRANT BOWIE Macau Daily Times

MGM China Holdings' IPO “is bubbling along,” said director Grant Bowie, denying a report by Apple Daily that mentioned MGM was delaying the listing.  The IPO “is progressing at a normal pace”, Bowie added.  MGM Macau’s president also revealed that he had talked with Hong Kong regulators yesterday, but gave no further details.

 

NO CASH SHIPPED FROM MACAU TO LAS VEGAS Macau Daily Times

Las Vegas Review-Journal announced it had “mistakenly stated that according to court documents filed by Steve Jacobs' lawyers, USD 68MM was couriered between LVS's Las Vegas and Macau operation."


“Court documents do not say cash was shipped, and the company says no cash was ever transferred,” the newspaper said in a correction note.

 

VISITOR ARRIVALS FOR JANUARY 2011 DSEC

Visitor arrivals totaled 2,076,064 in January 2011, up 1.4% YoY.  Visitors from Mainland China increased by 7.9% YoY to 1,220,534, mostly from the Guangdong Province, Fujian Province and Shanghai; those travelling to Macao under the Individual Visit Scheme totalled 538,306, up by 20.2% YoY.

 

THE M3: MPEL; MGM IPO; JACOBS; VISITOR ARRIVALS; S'PORE CPI; SMOKING - asdf

 

SINGAPORE CPI RISES AT FASTER PACE WSJ

S'pore Jan CPI rose 5.5% YoY and 1.3% MoM, faster than the market estimate of 4.8% and 0.6%, respectively.  Economists say the year-to-year rise is the fastest since December 2008 and that the month-to-month rise is the fastest since April 1981.

 

FOUR THOUSAND WORKERS SAY NO TO SMOKING IN CASINOS Macau Daily Times

Over 4,000 gaming workers have signed a petition to ban smoking inside casinos, a member of the Macau Gaming Enterprises Staff Association told MDT.  The association will continue to collect signatures outside of local casinos for a petition that will later be delivered to the Macau government.


Hawkish Winds

This note was originally published at 8am on February 18, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I am but mad north-north-west: when the wind is southerly I know a hawk from a handsaw.”

-William Shakespeare

 

You know when a French policy maker is more hawkish than you about inflation, that you’re a pretty dovish and left-leaning central banker. Despite all of the fiat Pig Paper flying around Europe these days, The Ber-nank’s Burning Buck continues to lose credibility versus the Euro by the day.

 

Ahead of the Almighty Central Planning meetings this weekend in Paris, France’s Finance Minister, Christine Lagarde, said this morning that, “we clearly need to keep inflation at bay”… and that “too much inflation is not going to be conducive to growth.” On the margin, European policy rhetoric continues to be more hawkish than America’s – and that’s saying something.

 

After hearing President Obama on his fiscal plans to amplify America’s Disaster Deficit and listening to Ben Bernanke profess to the world that he sees no inflation, we re-shorted the US Dollar this week. It’s already down a full 1% from where we shorted it. It remains broken across all 3 of our core risk management durations (TRADE, TREND, and TAIL). And, unnervingly, it has no long-term support to its post 1971 closing lows.

 

If you study the history of the US Dollar pre and post President Nixon abandoning the gold standard (1971), you’ll see that it’s become fashionable for US Presidents and their politicized heads of the US Federal Reserve to act in unison (both from a fiscal and monetary policy perspective) to attempt to debauch and devalue their way to political prosperity.

 

In trying to get re-elected in 1972, “Nixon wanted a large dollar depreciation to goose the US economy, but Pompidou feared that this step would saddle Europe with a larger loss of competitiveness.” (“Exorbitant Privilege” by Barry Eichengreen, page 76). And when Pompidou was the one criticizing Nixon on not being hawkish enough, the US definitely earned its currency credibility problem.

 

Preceded by Charles de Gaulle, Georges Pompidou was the President of the French Republic from 1969 until he died in 1974.  If Nixon wanted a tutorial on how to run a deficit and devaluation strategy, these French gentlemen had as much experience as any of the world’s post WWII central planners.

 

In 1972, Nixon had his modern day Ber-nank (Arthur Burns) cut interest rates and this caused the US Dollar to do exactly what it’s doing now – weaken. Sadly, Burns was then politically wedged into attempting to monetize the US Federal Debt thereafter (i.e. buying Treasuries) and The 1970s Inflation that was born out of these short-term political decisions was obviously President Jimmy Carter’s to deal with by the time the horses left the barn.

 

Now I’m not suggesting that the Obama/Bernanke team is as dovish and left leaning on the central planning front as the Carter/Burns combo was, but I am saying that if the US Dollar continues to be debauched that it’s going to be a tight race.

 

Yes, I think Bush/Bernanke had many of the central planning tendencies that Nixon/Burns did. And, yes, there’s been good reason why no Federal Reserve chief has tried to monetize the US debt since. Most of the Keynesians were evaporated by Paul Volcker. Now they’re back.

 

In Dollar Debauchery do Americans trust? Does the Rest of the World have any reason to trust America as the fiduciary of the world’s reserve currency? Is global trust an entitlement, or is it earned out there in this interconnected global economy every day?

 

These are important questions that Keynesian ideologues don’t need to help us with – because the answers are marked-to-market on your screens every minute of every trading day.

 

To be crystal clear on my Global Macro positioning here, I am hawkish and long of The Inflation.

 

As a Long/Short Global Macro Risk Manager who isn’t pigeon holed into being long-only French or American stocks, there are many ways to capitalize on these Hawkish Winds:

  1. LONG - Food Inflation (Wheat, Corn, Soy)
  2. LONG - Currencies of countries with hawkish central banks (Chinese Yuan, Canadian Dollar, Swedish Krona)
  3. LONG - Financials in socialized countries that have made banks too big to fail (JP Morgan, Goldman Sachs, CIT)
  4. SHORT - Sovereign Bonds of countries with deficit and currency devaluation central planners (US Treasuries, Japanese Government Bonds)
  5. SHORT - Currencies of countries with dovish central banks (USA, Japan)
  6. SHORT - Emerging Markets (India, Brazil, or countries in the Middle East)

Sure, US-centric, long-only, perma-bull strategists like Bob Froehlich and Don Luskin who I debated on Kudlow last night can belly up to the blow horn and howl “Dow 14,000” whenever they have a live wire on TV. But if you are Froehlich and you said “Dow 14,000” in January of 2008 and again in February 2011, have you really taken any lessons from the most recent crash and evolved your investment process? I think Americans have.

 

The British, the French, and the Japanese have learned this lesson of abusing entitlements the hard way. It’s taken many years and many charlatan politicians telling stories about Big Government Deficit Spending and Currency Devaluation being the way of the future. It’s taken many a Hawkish Wind to stand up to the tyranny of centrally planned economies and markets too.

 

But when the wind of a bond, currency, or stock market turns southerly, I think most of the people who have empowered these said fiduciaries with our hard earned moneys “know a hawk from a handsaw.”

 

My immediate term support and resistance levels for the SP500 are now 1328 and 1342, respectively.

 

Enjoy your weekend and best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Hawkish Winds - MM1

 

Hawkish Winds - MM2


R3: WMT, HD, M, VFC

R3: REQUIRED RETAIL READING

February 23, 2010

 

 

 

 

RESEARCH ANECDOTES

  • Wal-Mart noted that EDLP remains a key priority and one of the pillars of the company’s four-point plan to reinvigorate domestic sales momentum.  With price leadership at the forefront of Wal-Mart’s marketing message, management also reiterated that the company will “only pass on price increases when they cannot be avoided”.
  • Home Depot noted that the company’s 2011 forecast is based on a “commodity neutral” plan on the cost side of things.  Management did go on to note that there has been an increased amount of vendor-requested price increases over the past 45 days and they will evaluate each request on a case by case basis.  On the top-line, inflation in lumber and copper added about 50 bps to same store sales.
  • Macy’s noted that the company’s fashion offering allows the retailer to be less reliant on opening price point basics and more focused on product that contains more fashion at higher price points.  Additionally, the company noted that areas like home, center core, accessories, and other non-apparel categories will not be as impacted by raw material price increases.  
  • In a slight, but meaningful change in tone, VF’s management highlighted that marketing related investment spend will stay at the same rate in 2011 – approximately 5.5% of sales. Just last month it was suggested that marketing would revert back to historical levels of ~5% of sales to offset margin pressure. While the added spend will certainly help drive top-line growth towards expected levels of 8%-9% this year, the company has identified 100bps of additional SG&A expenses as an offset to higher costs in the coming months in an effort to keep operating margins flat-“ish.”

OUR TAKE ON OVERNIGHT NEWS

 

J.C. Penny to Unveil New Logo - J.C. Penney will an unveil a redesigned logo and a new slogan in its spring campaign launching during the Academy Awards on Sunday. The logo is still in red and white but with a more modern, graphic look. JCPenney is spelled out in lower case, the first three letters in white and contained in a red box; the rest of the lettering in red against a white backdrop. Logo redesigns can be tricky. Gap last year redesigned its logo, but scrapped it after a public outcry and quickly restored the old version.  However, there’s always excitement surrounding the Academy Awards, where Penney’s is the sole retail sponsor.<WWD>

Hedgeye Retail’s Take: It’s going to take more than a logo change to drive traffic back into the company’s store. 

 

Levi's, H&M  ban Sandblasting - Levi Strauss & Co. and Hennes & Mauritz have agreed to collaborate with the International Textile Garment & Leather Workers’ Federation to draft a manifesto banning the use of sandblasting in denim, in the hopes of convincing other brands to eliminate it, the global union federation said Friday. Levi’s and H&M said last year that they were eliminating sandblasted products from their lines due to health concerns for workers who are involved in the process around the world. “Sandblasting is a serious industry concern, and even though we at Levi Strauss & Co. are confident in our practices, we decided that the best way we can help ensure no worker in any garment factory faces the threat associated with exposure to crystalline silica is to move to end sandblasting industrywide,” said a Levi’s spokeswoman.  <WWD>

Hedgeye Retail’s Take:  Sounds like selvedge and other clean denim looks may become more popular if sandblasting falls by the wayside. 

 

Abercrombie consolidating fulfillment operations -  As part of an ongoing move to cut costs, Abercrombie & Fitch Co. is making plans to consolidate its distribution centers into a single facility. Abercrombie & Fitch, No. 65 in the Internet Retailer Top 500 Guide, currently operates a pair of distribution centers near its headquarters in New Albany, OH. One center is used to ship orders for its global e-commerce channel and for its Abercrombie & Fitch store locations. A second center supports the retailer’s store network for the Hollister and Gilly Hicks brands. <InternetRetailer>

Hedgeye Retail’s Take: With e-com volumes rising at a rapid pace, the move for distribution efficiencies makes a ton of sense. 

 

Moncler Said Eyeing Public Offering by June - Moncler Group is revving up to launch an initial public offering in the first half, possibly in June.  According to sources, the Italian company has tapped Banca Imi, Morgan Stanley and Bofa-Merrill Lynch as global coordinators. The plan is to float up to 50 percent of Moncler on the Milan Stock Exchange.  In addition to the Moncler brand, the Moncler Group includes high-end sportswear labels Henry Cotton’s, Marina Yachting and Coast, Weber & Ahaus, and it holds the license for Cerruti. The group closed 2010 with sales of 426 million euros, or $562.3 million. <WWD>

Hedgeye Retail’s Take:  If you haven’t seen the company’s flash-mob fashion show in Grand Central check it out:  http://www.youtube.com/watch?v=6Cn5FRLtWHE.  Hopefully the roadshow will be almost as exciting.

 

Auri Footwear to be Sold- Wellstone Filter Sciences, Inc. has entered into an agreement to acquire Auri Design Group, LLC, which designs and sells Auri Footwear for men and women.  The agreement is expected to close in the next few days, subject to the prior satisfaction of customary closing conditions and will result in Auri becoming a wholly-owned subsidiary of a public company. Wellstone plans on changing its name to "Auri, Inc." following the close of the transaction. "Our entire team is excited about the new opportunities that will be created by being traded on the OTC Market. It will help fuel our marketing and growth objectives in the short and long term" Founded in 2007 and headquartered in Laguna Beach, California, Auri Footwear was named by Forbes magazine as one of "America's Most Promising Companies." <SportsOneSource>

Hedgeye Retail’s Take: While still a nascent brand, the company has licensed Outlast technology originally designed for NASA spacesuits to keep feet cool and dry. Adding a bit of functional technology to the shoes fashion should help drive interest in the footwear which sells at $85-$230.

 

Mobile Payments Take Hold Around the World - A sixfold increase in the volume of mobile payment transactions is on the way in the next four years, according to one research firm. A forecast from Yankee Group predicts the worldwide transaction value of mobile payments will total $984 billion by 2014, up from $162 billion last year. That includes transactions from mobile banking, international and domestic remittances, contactless cards, mobile coupons and near-field communications. According to an Accenture survey of “tech forwards”—web users who use several networked devices and internet services—there is widespread concern around the world with the safety of mobile payments. <eMarketer>

Hedgeye Retail’s Take:  Anything that facilitates faster checkout and higher consumer satisfaction is likely to take hold as in the case of mobile payment technology.  Imagine not having to wait in a line ever again when wanting to check out of a Macy’s at Christmas.

 

R3: WMT, HD, M, VFC - r3 2 23 11

 

Buyers Turn to Cotton Alternatives - It’s all about blending in for spring 2012 fabrics, with high raw material costs pushing weavers to increasingly experiment with alternative fiber mixes. Designers attending the recent edition of Première Vision here embraced the trend for blends, lauding the innovation on display across collections. Among the fabrics being blended with cotton were linen, viscose, synthetics and cellulose-based fibers like Lyocell, Modal and Tencel. “It’s a challenge; you have to make something new out of it,” said Lanvin men’s wear designer Lucas Ossendrijver, who cited Japanese woolen mill Nikke among the standouts. “More blends will come out on the market, which I think is more interesting as yarns are a lot more advanced than in the Seventies.” <WWD>

Hedgeye Retail’s Take:  FYI the addition of synthetics can help the wear and tear of a garment.  Good news for those who will need to justify paying higher prices by wearing their garments longer. 

 

Textile Makers in Taiwan Required to Change Prices - Taiwan’s textile industry has not been positive about the new policy formulated by the Taiwanese Ministry of Economic Affairs (MEA) which requires producers across the textile value-chain to change prices of their products to just once-in-a-month.  The MEA has suggested the once-in-a-month pricing policy to safeguard the interests of the downstream producers like fabric manufacturers to protect them from the volatility of raw material prices as well as ensuring adequate supply. <FashionNetAsia>

Hedgeye Retail’s Take:  Don’t we live in a real-time, mark to market global economy?  Monthly pricing in this case seems archaic. 

 

China raises wages - China, the biggest brake on global inflation for two decades, is embracing wage increases that threaten to erode retailers’ margins and demand for bonds. Premier Wen Jiabao convenes the annual National People’s Congress March 5, where delegates will approve a five-year plan designed to elevate the role of domestic demand. Part of that strategy is endorsing higher pay, with all 31 Chinese provinces and regions likely to boost their minimum wages in 2011 for the second consecutive year, according to Credit Suisse Group AG. “When historians go back and describe 2010, the big story will be the massive increase in salaries that will redefine the global manufacturing model and redefine the inflation outlook for the next 10 years,” said Dong Tao, chief economist for non- Japan Asia at Credit Suisse in Hong Kong.  <Bloomberg>

Hedgeye Retail’s Take: The margin pressures continue. The positive for most companies this time is that they now have alternative sourcing options after facing last year’s wage increases. As such, expect the shift in manufacturing to accelerate in the coming months.

 

 

 


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CHART OF THE DAY: Don't Fail to Evolve While There's Still Time...

 

 

CHART OF THE DAY: Don't Fail to Evolve While There's Still Time... -  chart


Growth's Failure

“The only real failure in life is not to be true to the best one knows.”

-Buddha

 

Yesterday was the biggest down day for US stocks since August 11th of last year. If and when the US stock market starts to really break down again, I think the only real failures in our industry will be revealed by those who have chosen not to evolve their global risk management process from 2008.

 

One down day certainly does not a bearish trend make. But a -2.1% drop in price momentum on an accelerating volume study of +31% (week-over-week) combined with a one-day rip of +27% in volatility (VIX) should definitely have the bulls’ attention.

 

PRICE, VOLUME, VOLATILITY …

 

That’s the core 3-factor model I use across risk management durations. That’s what I have stayed true to since I re-built the model in 2007. That’s just part of my process. In order to embrace uncertainty as a given, I think a risk manager is best equipped to be Duration Agnostic.

 

The only real failure in my process would be choosing not to change the process as this globally interconnected marketplace changes. One of the key changes that I’ve made in the last 3 years is changing the durations in my models, dynamically, as volatility levels change.

 

I model all security level volatility from the bottom up, but to simplify this point I’ll use the VIX. Here’s where a closing price of 21.11 in the Volatility Index (VIX) fits across my 3 core risk management durations (TRADE, TREND, and TAIL):

  1. TRADE (3-weeks or less) = bullish, with TRADE line support at 16.17
  2. TREND (3-months or more) = bullish, with TREND line support at 18.09
  3. TAIL (3-years or less) = bearish, with TAIL line resistance at  22.09

So, in Hedgeye-speak, what’s happened to the VOLATILITY factor in the SP500’s 3-factor model is critical to acknowledge. Whether the TRADE and TREND lines of bullish VIX support hold or not is something that Mr. Macro Market will decide but, for now, what was overhead resistance in VOLATILITY is now support – and that’s bearish for US stock market price momentum. A breakout in the VIX above the TAIL line will make things crash.

 

Now if you take this 3-factor model:

  1. PRICE down
  2. VOLUME up
  3. VOLATILITY up

And overlay it with a critical correlation – the inverse correlation between the SP500 and the VIX – you’ll see that this relationship has been one of the most important concurrent risk management indicators we’ve been offered since the early part of 2008. Ignore it at your own risk.

 

In the chart below, you can see that this isn’t foreign land for me to be treading on. When I made the bearish call for a US stock market correction in April of 2010 (our Hedgeye Macro Theme was “April Flowers, May Showers”) I gave you the same signals.

 

Well, almost the same…

 

Nothing in my models are ever really the same, particularly when I blow out the vantage point to that other sneaky little critter called The Rest of the World. That’s why my baseline Global Macro Risk Management Model includes 27-factors (which also change and re-weight dynamically) and include important real-time prices like the US Dollar, Indian stocks, Copper, etc…

 

And this is really where I can look myself in the mirror and say, despite the fierce lobbying for me to chase US stock market fund “flows” into their mid-February crescendo, I stayed true to the best top-down risk management process I know – when Global Inflation Is Accelerating, and Global Growth Is Slowing, it’s time to build up a large asset allocation to Cash.

 

Now not a lot of people have Street credibility on moving to Cash. Not only because they didn’t start making this move in early 2008, but because they don’t have an investment mandate that allows them to move into Cash. That’s an industry problem, not yours.

 

Global Growth Slowing is perpetuated by Global Inflation Accelerating. Anyone who has ever invested in emerging markets recognizes this basic reality. Everyone who is short Emerging Markets (EEM), India (IFN), and Brazil (EWZ), like we are in the Hedgeye Portfolio gets the profitability of it too.

 

The biggest question about Growth’s Failure in virtually all of Asia and the austere side of Europe that you can answer for yourself is will Global Growth Slowing affect the said “safe havens” of US and Japanese stocks?

 

My answer to this is not only implied by the high-frequency growth data that I grind through every macro morning, but it’s amplified by the math that stands behind the reality that Structural Long-Term Growth Is Impaired By Rising Sovereign Debts.

 

Whether it’s American, Japanese, or Western European debt, it’s all the same thing – debt. And that’s why we’re not surprised to see consumption growth slowing in these Developed Debtor countries as we infuse them with $95 oil and other inflation related taxes.

 

Growth’s Failure won’t be crystal clear to Wall Street until it’s in the rear-view mirror, but yesterday’s PRICE, VOLUME, and VOLATILITY readings combined with continued breakdowns in Asian Equities and a breakout in oil prices should read true “to the best one knows” about globally interconnected risks.

 

My immediate term support and resistance lines for the SP500 are now 1307 and 1330, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Growth's Failure - day1

 

Growth's Failure - day2


TALES OF THE TAPE: MCD, TXRH, PZZA, DPZ, WEN, PEET, CHUX, DIN, KKD, SONC, CMG, JACK, CBOU, YUM

Notable news items/price action over the past twenty four hours.

  • MCD is raising prices by 0.8% in Germany on higher raw material costs, Bild reported. 
  • TXRH reported EPS of $0.14 versus expectations of $0.16.  FY11 guidance is for EPS to grow by 10% versus prior guidance of up 5-15%.  10% EPS growth implies EPS of $0.88 versus consensus of $0.94.  Comps came in at 3.1% versus expectations of 2.9% and guidance for FY11 comps is 3.5%. 
  • TXRH also declared an 8 cent dividend.
  • PZZA reported 4Q results yesterday after the close.  System comps came in at 0.7% versus the street's expectation of 0.5% and EPS came in at $0.51 versus consensus of $0.48.  EPS guidance of $2.00-$2.12 was reaffirmed versus consensus of $2.07 as the company believes favorable impact of early year sales will substantially mitigate the unfavorable impact of currently projected commodity cost increases throughout the remainder of the year.
  • DPZ is launching a new campaign promoting a new chicken menu.  The company is replacing Domino’s Chicken Kickers with a boneless chicken option.  Its chicken wing recipe is also changing.
  • Restaurant stocks in general declined steeply yesterday on strong volume. 
  • WEN, PEET, and CHUX were the only three stocks to gain on strong volume.  WEN and PEET are two names I have been vocal on as of late.  I see PEET as a viable target for SBUX, as I have written about at length over the past couple of weeks.  WEN is a classic turnaround story and I saw the recent Analyst Day (and announcement that the firm is selling Arby’s) as an inflection point for this company (WEN: FOCUSED, REAL & UNDERVALUED, 1/28/11).
  • DIN declined on strong volume, as did CAKE, CPKI, CBRL, and many other casual dining stocks. 
  • In QSR, KKD, SONC, CMG, JACK, CBOU and YUM were among the notable decliners. 

TALES OF THE TAPE: MCD, TXRH, PZZA, DPZ, WEN, PEET, CHUX, DIN, KKD, SONC, CMG, JACK, CBOU, YUM - stocks 223

 

Howard Penney

Managing Director


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