Shorting Thai: Back For Seconds

Conclusion: The confluence of slowing growth, accelerating inflation, and interconnected risk surrounding Thailand’s domestic politics within the construct of a bearish Global Macro backdrop have us bearish on Thai equities with an asymmetric risk/reward setup.


Position: Short Thai Equities (THD).


Yesterday, for the second time YTD, we shorted Thai equities in the Virtual Portfolio. After having covered the bottom in the SET on February 10, we’ve waited for our price on the re-entry side, as well as for our bearish catalyst(s) to be closer in duration. As a refresher, those catalysts are: 

  • Growth is Slowing;
  • Inflation is Accelerating; and
  • Interconnected Risk is Compounding. 

We’ll quickly rehash our thesis on all three below; additionally, we encourage you to check out our January 27 note titled, “Shorting Thai” for further depth.


Growth is Slowing: In recent months, the Street has revised down their forecasts for Thailand’s 1Q11 and 2Q11 GDP growth to within an average of 10bps of our own bearish estimates, which we outlined back at the start of the year. Though usually we like to fade lagging sell side revisions, Bloomberg Consensus Forecasts for Thailand’s 3Q11 and 4Q11 GDP are still 150-200bps to high and we expect further downward revisions as Thailand’s high frequency economic data continues to come in below expectations and indicating a slowdown the underlying momentum of the economy.


Shorting Thai: Back For Seconds - 1


Shorting Thai: Back For Seconds - 2


Shorting Thai: Back For Seconds - 3


Inflation is Accelerating: We continue to flag this as the backbone of our bearish intermediate-term thesis on Thai equities. Simply put, from both an economic perspective (slower growth) and a policy perspective (higher interest rates), we think inflation will come to be the bane of many-a-Thai-bulls’ collective existence. From our daily analysis of buy-side sentiment, those who like Thai equities continue to believe that underlying growth momentum is strong enough to overcome a pickup in inflation, which we obviously disagree with (55% of Thailand’s economy is consumer spending).


As we pointed out in our note from Friday titled, “Elections in SE Asia: Consternation’s on the Ballot”, we believe the early timing of the July 3 election (seven months ahead of schedule) suggests the ruling party believes sooner rather than later is the best time to test the electoral waters. We think that’s because they see what we see – higher rates of inflation on the horizon and higher interest rates in the near future. The central bank agrees, saying recently that the anticipated removal of State subsidies on diesel is likely to add +100bps to the YoY growth rate of Headline CPI and +50bps to the YoY growth rate of Core CPI (currently at 15 and 30-month highs, respectively). Not ironically, July is when funding for the State Oil Fund is expected to run out. Lastly, Bloomberg Consensus is only expecting two +25bps rate hikes through the end of 2011. Should Thai inflation trend according to our expectations, we find this optimistic forecast to be well short of the action we are likely to see out of the Bank of Thailand.


Shorting Thai: Back For Seconds - 4


Shorting Thai: Back For Seconds - 5


Interconnected Risk is Compounding: Perhaps the greatest risk we see in holding Thai equities on the long side is the geopolitical risk that is likely to hang over the market over the next 2-3 months due to the upcoming elections. Irrespective of outcome, we expect to see a return to the social unrest which gripped the streets of Bangkok in April/May of last year and helped precipitate a peak-to-trough decline of (-11.2%) in the benchmark Stock Exchange of Thailand Index.


Careful analysis of the situation reveals that protests of this magnitude (nearly 100 deaths) are potentially a probable scenario and that they could potentially exceed last year’s riots in scope. The results of recent polls conducted by both of the main opposition parties have each expecting to win a majority of the 500 open seats in the Thai House of Representatives. Even Vejjajiva’s own campaign coordinator concludes that “it’s a very tight race”, saying recently, “One time we are down; one time we are up. We can’t tell.”


The largest takeaway from this polling gridlock is twofold: 1) the Thai electorate is torn and supporters of the Puea Thai (red-shirts) are indeed mobilized; and 2) supporters of either party will be both heartbroken and outraged by what is likely to be a close defeat. Should the Democrats (yellow-shirts) manage to win, we expect the red-shirts to once again take to the streets in protest. On the flip side, should the red-shirts win, we are likely to see a second coup – either military or judicial – as both the armed forces and political elite of Thailand continue to strongly back the current ruling coalition. Such an occurrence is highly likely to result in a second round of protests as red-shirts take to the streets in outrage.


An additional downside risk to consider – from an admittedly US-centric analysis perspective – would be a breakout in the VIX, as that would be an additional headwind to international investor exposure to EM equities within the context of Thai’s own fundamental issues – just as it was last year during the Sovereign Debt Dichotomy scare. With the Debt Ceiling Debate kicking off in full swing alongside the end of QE2, we expect a similar breakout in volatility to dampen demand for risky assets in the coming months. Keep in mind last year’s April/May weakness in the SET was aided by a $2B foreign institutional investor outflow during the period. We expect to see similar results this time around as a function of the upcoming geopolitical consternation within Thailand.


Lastly, from a mean reversion perspective alone, Thai equities look particularly vulnerable having climbed +39.5% in the past year – good for the fourth highest return among all equity markets globally. Overnight, the SET closed up +1.22% to within 0.3% of its TRADE line of resistance at 1,089. From there we see an asymmetric risk/reward setup with (-5.2%) of downside to the intermediate-term TREND line of 1,029.


Darius Dale



Shorting Thai: Back For Seconds - 6

R3: WMT, GOOG, Luxury Brands, & Premium Denim





May 10, 2011






Wal-Mart's Africa Foothold Shaky as Job Worries Mount - The South African government warned that Wal-Mart Stores Inc.'s $2.4 billion proposed acquisition of African retailer Massmart Holdings Ltd. could cause thousands of job losses and worsen labor conditions, throwing cold water on one of the country's biggest potential overseas investments. The warning Monday came in an official report submitted to the Competition Tribunal of South Africa, an independent body that will approve or reject the deal. Local unions have opposed the proposed deal because of concerns about job losses. Wal-Mart's proposed acquisition of Massmart marks its first foray into the growing sub-Saharan market. Africa's prospects have proved alluring for the world's largest retailer, which plans to use the South African discount retailer as a foothold for continental expansion. <WallStreetJournal>

Hedgeye Retail’s Take: It’s hard to ignore the continent’s population of 1 Billion customers, but acquiring Africa’s third largest retailer presents discrete political risks to Wal-Mart unlike any it’s had to navigate before. While the bidding process continues to unfold in Africa, we suspect the company will remain more focused on growth in more developed countries.  


Google Music Service will Take on Amazon and Apple - Google will unveil details of its long-awaited music service on Tuesday in the battle with Amazon and Apple for the next generation of portable listening. The cloud-based music player will allow users to upload and store their music on the internet and listen to it on Android phones or tablets and computers. A Google spokesman said: "We plan to announce Music Beta by Google at our Google I/O developer conference. Please tune in to Google I/O Live on Tuesday and Wednesday for more details on all the news."It is similar to a "digital music locker" service launched by Amazon, the Amazon Cloud Player, in March, and will rival Apple's iTunes by giving Android users an easy way to store and listen to their music collections. But Google, like Amazon, is not thought to have done any deals with major record labels, offering a streaming listening service rather than one in which users can share songs or download the files themselves. <Guardian>

Hedgeye Retail’s Take: Content is king here and while Amazon and Google are new entrants to the music space, they’re participating in a different game of sorts and one that’s more competitive given the lower barriers to entry.


Introducing “” - An informational and e-retail site for book lovers will debut this summer. is backed by three major publishing houses—Hachette Book Group, Penguin Group USA and Simon & Schuster—and will sell print and digital e-books from those publishers and others. In addition to e-commerce, the site will feature original editorial content about books and authors designed to help consumers find something to read. The site will feature multiple book genres and enable readers to recommend books to each other. The company says editorial content will remain independent. “Bookish enjoys the support of significant, established players in the publishing and online space,” says Paulo Lemgruber, Bookish’s CEO. “With our ability to leverage the knowledge of publishers, retailers and authors, Bookish is innately positioned to fuel people’s passion for books.” Lemgruber is a former senior vice president of digital and operations at cable company Comcast Corp. <InternetRetailer>  

Hedgeye Retail’s Take: Publishing houses looking to capture mindshare in e-commerce with a platform that provides editorial content is a solid move in an effort to remain relevant in light of the industry’s massive consumer vacuum that is the e-book revolution. Concerns over just how independent content might be are trumped by empowering user recommendations and therefore democratizing the rating system -a move that has proven highly successful for Facebook. Not only does this give publishers valuable input from it's customers, but it also establishes a platform from which they can promote product directly - win-win.


Palladium Expands From Footwear to Bags - Palladium has long been known for the company’s signature fold-over sneaker boot, which has served many as a sort of upgraded, more rugged Converse Chuck Taylor. The boots and sneakers are available in many different styles, but all retain a simplicity that is true to the brand. Palladium is now expanding to include a small line of bags in the collection, which also seem to maintain the rugged simplicity of the brand’s shoes.   <Digitaltrends>

Hedgeye Retail’s Take: A little known brand to most, K-Swiss acquired it back in 2008 and it’s quietly grown to account for ~15% of sales from less than 3%. The company is making a calculated move across its brands to grow the apparel component of its business. As we noted yesterday, with less than 8% of the company’s sales  derived from apparel, this is a substantial opportunity that we expect the company to grow at a measured pace consistent with how it’s approached this type of opportunity in the past.


Luxe Brands Lagging 2008 Ratings - Apparel brands have nearly regained their prerecession vibrancy, but despite the recent rally in high-end spending, luxury names still have a way to go before they get back to 2008 levels, according to the recent BrandZ Top 100 Most Valuable Global Brands study. The total value of apparel brands rose 10 percent compared with the results of the 2010 study, and are just 1 percent below their 2008 level. The value of luxe brands has been expanding more rapidly, growing 19 percent versus last year, but the well-heeled names are still worth 13 percent less than they were in 2008. The study was conducted by Millward Brown Optimor and attempts to determine the intrinsic value of a brand by estimating the sum of all its future earnings and discounting that figure to a present-day value. <WWD>  

Hedgeye Retail’s Take: Sure, luxury is still off its 2008 highs more than apparel, but with three iconic luxury brands (Burberry, Hermes, and Cartier) making the reports Top 20 Risers list this year posting an average brand value growth of 53% yy one could argue that luxury is making up ground quickly. Interestingly, only two brands among the Luxury categories Top 10 brands by value declined since last year, Gucci and Hennessy down -2% and -7% respectively.


Premium Denim Resurrected? - Get ready for the bounce. New denim silhouettes and washes are reinvigorating what many retailers described as a decelerating denim trend last year. According to denim vendors and retailers, as the economy improves, the female customer is coming back — and not just to replace the jeans she already has, but to add new, fashion-forward looks to her closet. “Business overall is doing much better than our retailers have planned, be it at department stores or specialty stores,” said Marc Crossman, president and chief executive of Joe’s Jeans Inc. “It really comes down to a magnitude shift…now there are some major trend changes that I think will have an impact on that mix shift.” New Sixties- and Seventies-inspired silhouettes, white jeans and special washes are pulling the category back to relevancy, which is helping to “reignite” the premium denim market, said Crossman, who noted that like his competitors, his company is adding newness with wide legs and flares available in “all flavors, be it fabric or washes.” <WWD>

Hedgeye Retail’s Take: Whether it be flared leg jeans for Joe’s, or a continuation of skinny and colored styles as highlighted by True Religion, the fact that there are new styles out there that the consumer is responding to in some regard is a clear positive in that we may have finally reached a point of stabilization in the premium category. Let’s not get carried away thinking that the $200 jean growth engine is back, but no longer declining is a close second on the margin.


China Footwear Imports to U.S. Slow - China is feeling the impact of rising labor costs as U.S. footwear firms shift sourcing to other countries. According to a report issue Monday by UBM Global Trade’s Journal of Commerce, China's share of footwear imports to the U.S. dropped to 73 percent in the first quarter of 2011, from 75 percent in the first quarter of 2010. And while U.S. foreign demand for footwear in 2010 grew 16 percent year-over-year, Vietnam and Indonesia saw higher rates of growth compared with China, indicating sourcing shifts to those markets, the study found. China's share of U.S. imports is also waning in the labor-intensive apparel categories. In menswear, it dropped to 22 percent in the first quarter of 2011, from 25 percent in the first quarter of 2010; while women's and infants' wear decreased to 31 percent from 34 percent. “The results of this analysis underline the change of trend direction in U.S. imports of footwear and apparel from China, from upward to flat to downward, as manufacturing firms flee the country on rising wages,” said Mario Moreno, economist for The Journal of Commerce. <WWD>

Hedgeye Retail’s Take: The speed of exit/shift has varied among brands, but the move in aggregate was has been well communicated for nearly a year now. While many remain focused on share shift in southeast Asia, brands are increasing activity and attention to Central and South America as new potential sources of production – something we expect to hear more about in 2011.






Correlation Risk: SP500 Levels, Refreshed



It’s pretty clear that the institutional investing world’s consensus is cheering on another US Dollar Debauchery. Most people are still long The Inflation. Fundamentally, that’s not a good thing for the country - that’s just how part of the country gets paid.


What that is going to look like if it does in fact occur from this price level in the US Dollar Index is very confusing. Will that be the last blast up to lower-highs for commodities and equities? Will US equities make higher-highs on astonishingly low volume? Or will the ongoing crash in the US currency ultimately come home to roost for everything priced in US Dollars like it did in Q208 (and last week)?


Critical questions and critical lines in the SP500 continue develop as we push with a full head of steam out of the beloved (and cyclical) “earnings season” and into the hottest macro calendar of politicking (May/June deficit and debt ceiling debate) that we have seen in a very long time.


Across our 3 core risk management durations (TRADE, TREND, and TAIL), here are my lines: 

  1. TRADE (3 weeks or less): TRADE line support of 1334 continues to hold and should be given the bullish benefit of the doubt until it breaks.
  2. TREND (3 months or more): support remains at 1314 (down -3.6% from the YTD high of 1363) and should come into play if we see a TRADE line break of 1334.
  3. TAIL (3 years or less): lower-long-term highs (much like Japanese equities since the 1990s) will be the result of trying to devalue our way to cheap debt financed prosperity – current range of scenarios can get me as high as 1377 and nothing will have changed my long-term view of how all this ends. 

The Price Volatility driven by The Heavy Hand of government intervention isn’t for me. I’ve tightened up the net exposure of the Hedgeye Portfolio to 13 LONGS and 12 SHORTS on this morning’s strength in global market prices.



Keith R. McCullough
Chief Executive Officer


Correlation Risk: SP500 Levels, Refreshed - 1

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Notable news items and price action from the past twenty-fours along with our fundamental view on select names.

  • DRI’s Olive Garden received a warning but no fine following a Florida state investigation into how a toddler was accidentally served sangria at a Lakeland restaurant.
  • TAST reported 1Q11 EPS of $0.10 versus consensus at $0.12.  Comparable restaurant sales increased 13.5% at Pollo Tropical, 2.0% at Taco Cabana, but decreased 5.0% at Burger King.  Guidance is for comps to come in at +6-8% at Pollo Tropical (versus 3-5% previously) and to increase 2-3% at Taco Cabana (versus 1-2% previously).  Burger King comparable sales are expected to be negative for the full year but improving in 2H11.
  • TAST declined 1.2% on accelerating volume yesterday, ahead of the earnings miss.
  • KKD gained 7.2% on accelerating volume. 
  • CPKI and CBRL declined on accelerating volume.




Howard Penney

Managing Director


TODAY’S S&P 500 SET-UP - May 10, 2011


Yesterday, we saw the USD down to start the week (down for the 15th week of the last 20), which had CRB Index ripping yesterday (+2.1%) after getting crushed last week (down -8.9% for the wk).  Oil moved back above our intermediate-term TREND line of support = $98.63 and Gold continues to look better than almost everything that’s big and liquid other than maybe the German DAX. As we look at today’s set up for the S&P 500, the range is 17 points or -0.99% downside to 1334 and 0.35% upside to 1351.




The Hedgeye models now have 7 of 9 S&P Sectors bullish TRADE and 8 of 9 bearish TREND.  The XLF is the only sector broken on both durations. 




THE HEDGEYE DAILY OUTLOOK - daily sector view








  • ADVANCE/DECLINE LINE: +1181 (+188)  
  • VOLUME: NYSE 778.48 (-24.18%)
  • VIX:  17.16 -6.47% YTD PERFORMANCE: -3.32%
  • SPX PUT/CALL RATIO: 1.94 from 1.85 (+4.61%)



  • TED SPREAD: 24.55 -1.521 (-5.834%)
  • 3-MONTH T-BILL YIELD: 0.03% +0.01%
  • 10-Year: 3.17 from 3.19
  • YIELD CURVE: 2.60 from 2.62 



  • 7:30 a.m.: NFIB Small Business, est. 91.8, prior 91.9
  • 7:45 a.m.: ICSC-Goldman weekly retail sales
  • 8:30 a.m.: Import price, est. 1.8% (M/m), prior 2.7%
  • 9:30 a.m.: Fed’s Duke speaks in St. Louis
  • 10 a.m.: Wholesale inventories, est. 1.0%, prior 1.0%
  • 11:30 a.m.: U.S. to sell $28b 4-wk bills
  • 12 noon: DoE short-term energy outlook
  • 12:45 a.m.: Fed’s Lacker speaks on Arlington, Vir.
  • 1 p.m.: U.S. to sell $32b in 3-yr notes
  • 4:30 p.m.: API inventories


  • China’s April inflation data due out tomorrow.
  • Microsoft close to completing $7B for Skype - WSJ
  • Google online music service to probably be announced tomorrow at Google I/O developers conference - WSJ



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Crop Weather Damage Grows as Europe Drought, Canada Rain Boost Grain Costs
  • Oil Inventories Increase to Near a Two-Year High in Survey: Energy Markets
  • Sugar Rises Most in Six Weeks as Imports Into China May Jump; Cocoa Gains
  • Wheat Gains for Third Day as Adverse Weather Threatens Harvests Worldwide
  • Copper Climbs for a Third Day Before Release of Figures on China Inflation
  • Copper Imports by China Decline on Ample Supplies, Higher Overseas Prices
  • Gold May Advance as Sovereign-Finance Concern Stokes Demand; Silver Gains
  • Malaysia Smelting Climbs to Three-Month High as Tin Prices Produce Profit
  • Mississippi Flooding Threatens Cropland, Refineries and Shipping Traffic
  • Soybean Imports by China Tumble on Canceled Orders as Stockpiles Stay High
  • Palm Oil Stockpiles, Output Reach Six-Month High in Malaysia on Weather




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • Greek banks jump on talk country to avoid debt restructuring.  But…
  • Greece denies report it is discussing new aid package -- Reuters, citing Greek Finance Minister
  • France Mar Industrial output (0.9%) m/m vs consensus +0.4% 







  • Most Asian markets that were open today ended a higher
  • Hong Kong was closed for Buddha’s Birthday.
  • South Korea was closed for Sukka Tansin II.
  • China April trade surplus $11.4B vs consensus $1-3B. Australia March trade balance A$1.74B vs consensus A$500M.












Howard Penney

Managing Director


The Macau Metro Monitor, May 10, 2011



Pansy Ho's non-compete agreement with MGM China Holdings will let her keep her directorship and 3.77% minority stake in STDM, the parent of SJM Holdings.  MGM China said, "As Pansy Ho is a director and substantial shareholder of the company, she does not intend to participate in board decisions of STDM which concern the exercise of rights attaching to its indirect majority shareholding in SJM."  In addition, Ho and her associates can own shares in STDM as long as they do not directly or indirectly control the firm, and so long as STDM's Macau casino investments are confined to publicly listed SJM.


Any breach of the non-compete agreement by Ho that is triggered by the activities of STDM, SJM or Shun Tak Holdings would give her 30 days to resolve the situation. Ho would then have three options: undo such a breach of the agreement, sell down her stake in MGM China to below 20%, or sell down her stake in Shun Tak, STDM or SJM to a level that "no longer causes a breach".


Because of a legal battle between the operators of American celebrity nightclubs Pangaea and Avalon and a former partner, MBS said the clubs' opening in July 2011 will be delayed by at least another month. Also, MBS is moving ahead with a new parter after Kraze, which has ties with South Korean entertainment company Krazetech, failed to get the intellectual property rights to operate the clubs under the brands, Avalon and Pangaea.



Housing transactions fell in 25 of the 35 key cities monitored by the China Real Estate Index System (CREIS) in the week of May 2-8, following a short-term boost over the three-day Labor Day holiday, although prices remain high.  Of the nine most closely watched cities - Beijing, Tianjin, Shanghai, Wuhan, Nanjing, Guangzhou, Shenzhen, Chengdu and Chongqing - seven saw week-on-week declines.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.67%