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The Bounce: SP500 Levels, Refreshed

POSITION: No position in SPY


In this morning’s Early Look I posed the simple question: Quake or Correction?


I answered the question with Correction – and no that doesn’t mean I am bullish on US Equities. It doesn’t mean I am bearish at every time and price either. I’m trying my best to be Duration Agnostic.


1.  The TRADE - from an immediate-term TRADE perspective, the SP500 is oversold at the 1288 line (see chart). It will also be immediate-term TRADE overbought on The Bounce at the 1312 line. Therefore 1 is the immediate-term TRADE range and I plan on managing my risk exposures accordingly.


2.  The TREND – from an intermediate-term TREND perspective, the SP500 is overbought and oversold at 1343 and 1265, respectively. Therefore 1 is the intermediate-term TREND range and I plan on managing my risk exposures in the intermediate-term accordingly.


There should be plenty of emotion around the 1301 line. That’s the 50-day moving average that, for better or worse, a lot of people without a multi-factor, multi-duration, risk management process use. So watch the VIX, USD, and OIL as you keep all of the factors in mind.




Keith R. McCullough
Chief Executive Officer


The Bounce: SP500 Levels, Refreshed - spchart

Big investor dumps its U.S. Treasury bonds

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The Macau Metro Monitor, March 11, 2011




In a statement late on Thursday, the 89-year old billionaire said he filed a note of discontinuance on Feb. 21, dismissing a legal case against members of his second and third families, which include daughters Pansy and Daisy Ho.  "A deed of settlement was executed between all branches of the Ho family," Ho wrote in a signed letter.


16 gaming legislation bills



It's still early in 2011 but more and more state bills proposing slots are popping up, which means more opportunities for the slot players.  As we mentioned in TIS THE SEASON (1/12/11), the environment for gaming expansion is hot given the enormous budget deficits that states have to overcome.  While nothing is guaranteed, we believe many of these bills will be given serious consideration later this year or in 2012/2013.


Some key ones to keep an eye on include Ohio, Massachusetts, and Delaware.  Gov Kasich of Ohio doesn't mind slots at the racetrack but he is seeking a gambling consultant to review the impact of slot machines at the state’s seven racetracks.  Massachusetts has had a long history of disappointment in legalizing casinos but an agreement with Gov Patrick may be coming to fruition. Delaware recently introduced a bill promoting two more casinos, which we estimate could bring 6,000 more slots to the state.


And there is the three giant wild cards—Texas, Florida, and Illinois—which would be a significant boost for the slot suppliers.


Here are the 16 bills:



Bill: HB 40: two casinos—one each in Sussex and New Castle counties; three possible 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/Details: HB 40 will be assigned to the House Gaming & Pari-mutuels Committee

Timing: 2011

Convene Session Date: Jan 11, 2011

Adjourn Session Date: June 30, 2011



Bill: SB1708: 5 "Destination Resorts"—one in five regions around Florida; 

Est Slots: +10,000

Status/Details: 500k sq ft of MICE space, +1000 hotel rooms; <10% sq ft for gaming; $50MM upfront cense fee; $1MM application fee; {10% tax rate (+2BN cost); 15% tax rate (+1-2BN cost); 20% tax rate (<1BN cost)}; 7-member Destination Resort Gaming Commission; Miami commission said it opposes casinos; Possible developers: LVS, CZR, MGM, PENN, GENTING

Timing: 2011/2012; earliest date for casino opening is 2015

Convene Session Date: Mar 8, 2011

Adjourn Session Date: May 6, 2011



Bill: Rep. Stephens proposal—casino in Special Entertainment Zone; 

Status/Details: Plans to introduce constitutional amendment toward end of legislative session; Possible locations: Jekyll Island, Lake Lanier and Savannah’s Hutchinson Island

Timing: 2011

Convene Session Date: Jan 10, 2011

Adjourn Session Date: Mid-April



Bills: 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: VLT Bill: 30,000-50,000;

Status: Regarding slot bill, State Appellate Court called Video Gaming Act (VGA) unconstitutional; appealed to State Supreme Court; State Legislature may have to pass VGA again.

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: Referred to Committee on Federal and State Affairs; unlikely to pass given Republican House; 1) minimum casino investment at $100MM (previously $250MM); privilege fee at $11MM 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: Biddeford proposal & Great Fall Recreation and Development proposal

Status: Has enough signatures on petitions to force a statewide referendum. If Legislature does not change existing law to open a racino, then proposal would go to referendum. Maine's racino law requires local approval of communities where existing harness-racing tracks were located.

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011



Bill: Proposal for several new casinos

Status: Very preliminary

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011



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


North Carolina

Bill: Proposal for VLTs

Status: Gov. Beverly Perdue considering recommending VLT bill to legislature

Timing: 2011

Convene Session Date: Jan 26, 2011

Adjourn Session Date: Early June



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 Vote.org). Gov-elect Kasich looking over slot proposal and will decide whether to seek a court order to determine authority over the matter. Kasich said on 2/25 that he’s in no rush to legalize slot machines at the state’s horse racetracks.

Timing: 2011

Convene Session Date: Jan 3, 2011

Adjourn Session Date: Meets year-round


Rhode Island

Bill: Proposal for 1st full-scale casino

Status: Very preliminary $100 MM, one-time licensing fee

Timing: Referendum Nov 2012

Convene Session Date: Jan 4, 2011

Adjourn Session Date: Late June



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



Bill: Proposal for one casino

Status: The bill calls for the Vermont Lottery Commission to oversee the casino.  Proceeds would go to the state Education Fund, as they do for lottery tickets now. A $5 million licensing fee and $50,000 application fee.

Timing: 2011

Convene Session Date: Jan 5, 2011

Adjourn Session Date: mid-May


West Virginia

Bill: HB2140

Est Slots: ~500 per year

Status: Passed state House Judiciary Committee; heads to House Finance Committee $10MM per year allocated to racetrack fund intended to help the 4 state racinos

Timing: 2011

Convene Session Date: Jan 12, 2011

Adjourn Session Date: mid-March



March 11, 2011



  • In recapping some of the merchandising mistakes Wal-Mart made last year, the CEO noted that the company actually increased its floor space allocation to entertainment and electronics category by 21%  last year.  Unfortunately, the company ended up increasing exposure to a category with the most pronounced deflation within the store.  This ultimately led to sales pressure as well as a negative return on the “space investment.”  Toys, apparel, and home were categories in which space was cut.
  • Despite coming out of the reported 4Q with inventories up 9% per square foot, ARO noted that the company has been aggressive in clearing inventories over the past two months.  As a result, post 4Q, inventories are currently up 4% per foot.  As for the pricing environment in the mall, management has not seen any major changes although they do note that competitors are testing different pricing schemes and promotions in preparation for higher costs over the back half of the year.
  • Foot Locker noted that as the company’s revamped apparel strategy continues to evolve it’s likely that Nike apparel will be more of a focus at core Foot Locker while AdiColor will be more geared towards Champs.  Sounds like the banner segmentation strategy is continuing to take hold.



Amazon Takes Action in Illinois  -  Inc.'s battle with state governments over sales taxes is escalating. The online retailer on Thursday took action in Illinois, as it had threatened to do, to counter a new law aimed at forcing online retailers to collect sales taxes in the state. Hawaii, North Carolina and Rhode Island have enacted similar laws, and California is weighing action. Amazon is also in a court battle with New York over such legislation. The Illinois law, signed by Gov. Pat Quinn Thursday, requires online retailers that work with affiliates in the state to collect sales taxes on purchases made by Illinois residents and businesses. Amazon responded to the measure by cutting ties to its Illinois-based affiliates, which are blogs and other websites that refer traffic to Amazon's website and get paid commissions if customers make purchases there.<WallstreetJournal>

Hedgeye Retail’s Take:   Another effort to skirt the growing efforts of states to collect sales tax from online only retailers.  We believe Amazon and others will ultimately lose this battle as it makes no practical sense for them to operate under a second set of taxation rules when compared to most of retail.


Wal-Mart takes same day pick-up national - Wal-Mart Stores Inc. announced today that it will make its Pick Up Today service available at store locations nationwide by June. The service allows consumers to buy online at Walmart.com and pick up their orders at a nearby store in about four hours. The multichannel retailer began testing the service in October in about 800 stores. The test service limited the products eligible for same-day pick-up to select electronics, video games and household appliances. The company says the national rollout will encompass nearly 3,600 stores and up to 40,000 products, including products in additional categories such as baby, toys, home décor, hardware and outdoor living. Food products are not eligible for the program at this time. <InternetRetailer>

Hedgeye Retail’s Take:  Another way to potentially drive incremental store traffic while at the same time adding a customer friendly feature to the Wal-Mart shopping experience.  Sameday service within a matter of hours is certainly impressive.


Williamson to Do Macy's Line - Matthew Williamson is next up in Macy’s designer capsule collection series, a key component in the store’s accelerating strategy to woo younger shoppers and project a hipper image. Williamson will give a bright, bohemian edge to Macy’s selling floors, creating embellished day and party dresses, printed scarves, and day-to-evening rompers, among other items, about 30 styles in all. The line launches April 13 in 225 doors and on macys.com. Prices will range from $50 for a blouse to $150 for dress, with some more expensive items, such as leather and suede jackets, priced up to $300. An advertising campaign with model Dree Hemingway breaks Tuesday. <WWD>

Hedgeye Retail’s Take:  Macy’s continues to push the envelope with its exclusive, contemporary offerings taking a play out of the playbook of H&M, Uniqlo, and others.


Retailers Brace for Inflation - The recession forced retailers to offer better value. Now they’re scurrying to maintain the proposition as they shop the world for fall goods and confront sticker shock as a result of soaring labor and raw material costs. Prices for fall are expected to be 10 to 15 percent higher — and in some cases could rise even more depending on the product. While it will be mass and midtier retailers like Wal-Mart Stores Inc., Target Corp., Kohl’s Corp., J.C. Penney Co. Inc. and The TJX Cos. Inc. that will be hit the hardest, no company is expected to escape unscathed.  Higher apparel prices will only add to the growing specter of inflation across the economy — from food to gasoline. The skyrocketing price of oil because of turmoil in the Middle East has caused global stock markets to plummet in recent days, with the Dow on Friday closing below the 12,000 mark for the first time in six weeks. <WWD>

Hedgeye Retail’s Take:   Expect this story to remain perpetually in the headlines until prices finally head the other way.  That means we’re looking at 6-12 months of a “costs on the rise” media focus.


Big Retailers Try to Sway Congress on Debit-Card Fees - Thousands of credit-union members visited Capitol Hill on March 3 to warn that a Federal Reserve proposal limiting swipe fees collected on debit-card purchases is anti-consumer. A cap on fees banks collect from merchants will force card-issuing credit unions and banks to cancel reward programs, eliminate free checking, and impose annual fees, they told lawmakers.  A week later, about 170 small business owners flew into town with the opposite message. The Fed plan is pro-consumer, they said, because it will help lower retail prices while preventing card issuers from profiting at their expense, money that goes to fatten bankers’ bonuses.  Framing brawls about money as essentially consumer issues is a time-honored tactic in Washington. However, the debit-card fee issue is primarily a conflict between big business and big banks, Bloomberg Businessweek reports in its March 14 issue. Up for grabs is $16 billion in annual revenue. <Bloomberg>

Hedgeye Retail’s Take: Debit-savings, especially for consumables and discount retailers couldn’t come at a better time with escalating inflation on the horizon.  The question still remains if retailers will choose to enhance overall margins with the potential savings or put the cost savings back into price.


Foreign Businesses Hit by Japan Earthquake - Foreign companies Friday started counting the cost of a giant earthquake in Japan as operations were disrupted across the country.  Truck maker Volvo AB was among those worst hit as its main facility in Japan was forced to halt production. The Swedish company said damage to its UD Trucks facilities in Ageo in the southeast of Japan, seems to be mainly superficial, but it will be days before the company can do a full assessment.  Volvo employs 10,000 people in Japan, while a further 3,000 work at UD Trucks' dealerships. Volvo said the dealership at Sendai, close to the epicenter of the earthquake, had been seriously damaged, and it couldn't yet say how other dealerships had been affected. Food giant Nestlé SA said two of its locations in Japan had been impacted. <Wallstreet Journal>

Hedgeye Retail’s Take:   In retail, Coach comes to immediate focus with its international exposure highly levered to Japan.  Luxury goods companies are also likely to see some near term pressure.

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