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R3: FW M&A, Hermes, Social Commerce, & Li-Ning

 

R3: REQUIRED RETAIL READING

May 31, 2010

 

 

 

 

RESEARCH ANECDOTES

  • A look at Neiman Marcus’ multi-pronged approach to e-commerce illustrates why the luxury retailer is one of the early success stories in the industry with more than 15% of total sales now generated from the direct channel. The company is finding new ways to reach customers including blogs with fashion advice, social network integration, and even installing Wi-Fi in select stores to support mobile strategies. The pull vs. push model appears to be working with Facebook fans growing to 330,000 from 90,000 since the beginning of the year.
  • One of the byproducts of company’s seeking ways to reduce costs along the supply chain has been improved environmental practices. Case in point, Patagonia has just announced its “Our Common Waters” initiatives aimed to better measure and ultimately reduce water used in producing apparel and footwear products. Early results suggest over 700 liters of water go into making a shirt, far more than the 42 liter figure Levi published when it launched its WaterLess Jean Initiative last fall, which highlighted a 28% reduction in average water usage.
  • While not an elite tennis brand, it’s worth noting Li-Ning’s exposure during the Nadal vs. Ljubicic match at Monday’s French Open. With Marin Cilic also on the list of endorsed tennis athletes, the brand has two players in the Top 40 at #37 and #21. Yes, a far cry compared to Nike with two players in the Top 3, but Li-Ning’s exposure continues to gradually increase on the global stage.

R3: FW M&A, Hermes, Social Commerce, & Li-Ning  - R3 2 5 31 11

 

OUR TAKE ON OVERNIGHT NEWS

 

Footwear M&A Just Warming Up - Footwear firms are clearly in a buying mood. Five acquisitions, including Labelux Group’s marriage with Jimmy Choo, Steve Madden’s Topline and Cejon buys, Deckers’ deal with Sanuk and Fila Korea’s golf acquisitions, were concluded in the last two weeks alone, and the activity is set to ramp up in the months ahead, said experts. The overall strength of the footwear market is giving many players the confidence to make moves on the mergers-and-acquisitions front.“It’s easier to be bullish about acquisitions when you’re forecasting solid organic growth for your existing portfolio of brands,” said Don Grimes, SVP and CFO at Wolverine World Wide Inc., which continues to set aside cash to fund potential acquisitions. “Certainly an improved credit market and the availability of capital have played a role as well.” Greg Tunney, president and CEO of R.G. Barry Corp., said his firm is hunting for similarly sized acquisitions. “We’re looking for companies in the $30 million-to-$50 million sales volume range, and there are a lot of great companies out there [that fit the bill].” Regardless of the size, he added, “[the companies] have to be well-run and operated. We’re not interested in a fixer-upper or a distressed asset.” Finally, the increasingly challenging sourcing situation in China is prompting more firms to partner up. Madden said Topline, a privately held company based in Seattle, was attractive for the direct sourcing platform it owned in northern China, leading to better prices and potentially higher gross margins for the whole group. “It’s much more difficult for smaller people to do business in China. You need volume to be profitable,” added Chinese Laundry CEO Bob Goldman, who also is looking for acquisitions. <WWD>

Hedgeye Retail’s Take:  WWW has the right idea here, and they’ve proven to be so good at this model. But others, unfortunately, continue on with the ‘buy when we could, not when we should’ model.

 

LVMH's Puech Addresses Hermes' Shareholders Directly - Although Arnault has said he is not seeking full control of the maker of Birkin handbags and silk scarves, Hermès has vowed to protect itself from what it considers an unwelcome suitor. LVMH vice chairman Pierre Godé took to the floor at the Hermès annual meeting to formally refute Puech’s charges. “Contrary to any impression given elsewhere, LVMH has never sought to destabilize the Hermès family nor the company’s staff nor suppliers. I challenge those who assert otherwise to produce a shred of evidence — for the avoidance of doubt, there is none,” Gode said. “LVMH directors are rational and lucid people. From the outset we understood that there was no possibility of controlling Hermès because the family shareholders spoke for 70 percent of the company,” he added. “That aside, it would make no sense for LVMH to destabilize Hermès as it would risk compromising the success of this great company. The more this company prospers, the happier we all are as shareholders,” Godé added. Puech reacted to the comments with skepticism, saying recent facts spoke for themselves. <WWD>

Hedgeye Retail’s Take: This marriage would actually make sense on many levels. We can’t imagine what Hermes considers ‘unwelcome.’ Perhaps it’s the fact that LVMH has been buying at the market price and not at a 50% premium. That can be fixed pretty easily.

 

Moncler IPO a Go - Moncler SpA on Monday was given the go ahead for its listing on the Milan Stock Exchange.In April, the hot outerwear brand filed documents to go public, heading for a float by the end of June. Moncler’s filing did not disclose the amount of shares it plans to list, although sources have said it was looking at floating up to 50 percent of the company. They estimated the float would value the group at about 1.1 billion euros, or $1.5 billion at current exchange. Consob, Italy’s stock market watchdog, is expected to also approve the listing this week, followed by a two-week road show starting next week, according to sources. 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 private equity fund Carlyle Group owns 48 percent of Moncler. Remo Ruffini, the firm’s president and creative director, who acquired Moncler in 2003, views the IPO as a chance for the company to invest in further international expansion, both via wholesale and, increasingly, its own retail stores. While Prada has chosen Hong Kong for its IPO, Marco De Benedetti, managing director of Carlyle, told WWD in February that as a European company, Moncler was going to “maintain its roots, and list where these roots and values are.” <WWD>

Hedgeye Retail’s Take: It looks like Moncler’s store growth from four to over thirty in less than three years under Carlyle is just the beginning. Moreover, with only three stores now in the U.S. (two of which were added just last year), and company’s interest in acquiring additional brands for the portfolio, expect greater brand proliferation in the U.S. just in time for holiday shopping.

 

Gucci Enters JV With Supplier - Gucci has established a joint venture with leather goods firm Arte & Pelle, one of its historical suppliers. Gucci holds a 51 percent stake in the new company, called GARPE – Gucci Arte & Pelle. Virgilio Brogi, founder and director of Arte & Pelle, retains the remaining shares. The company has been working for Gucci since 1995. Under Di Marco’s management, Gucci has been touting craftsmanship and Made in Italy quality. Founded in 1978, Arte & Pelle, with sales of 8 million euros, or $11.2 million at current exchange, is focused on the production of handbags. It counts 40 direct employees and a network of 18 suppliers, for a total of 120 people working indirectly for the company. This is the third such venture for Gucci. In November, the company joined forces with Pelletteria Annalisa, creating a new company called GPA, Gucci Pelletteria Annalisa. In this case, too, Gucci owns 51 percent of the holding. Pelletteria Annalisa is also located in Tuscany, in the town of Figline Valdarno, near Florence, and produces belts, bags and luggage. <WWD>

Hedgeye Retail’s Take: This is a continuation of the trend we’re seeing whereby high-end/luxury companies are going more and more vertical. It was the front end first, now it is increasingly on the back end.

 

Executive Departures at Li-Ning - Chinese sportwear brand Li Ning is currently in face of management transition as three key executives have recently resigned.  "In the recent two months, these three staff resigned from their respective positions with the group to pursue their personal interests," the company said in a brief statement. "Their departure constitutes normal changes to the group's management staff."  The three personnel who have left are chief operating officer Guo Jian-Xin, chief marketing officer Fang Shih-Wei and e-commerce manager Lin Li. "All the strategies and operations that the group is carrying out will not be affected by the departure of individual employees," Li Ning added. "In addition, the group has a rich talent pool and a suitable organizational structure to meet the Group's business development needs. The management will continue to focus on the group's future developments and the implementation of strategies to improve the group's business performances." <FashionNetAsia>

Hedgeye Retail’s Take: Let’s be clear, the resignation of the COO and CMO are not in the course of normal business. Nonetheless, investors in the US largely do not recognize the threat that Li Ning perennially poses in Asia, Europe and even the US. Did anyone see Nadal’s match yesterday vs. Ljubicic at the French Open? Google the guy for an image or two. Nadal was all Nike-d out – but consumers have grown to expect this. Incrementally, they probably did not get much off of their marketing dollars. But Li-Ning (even though their player lost) got the unexpected exposure. This is similar to the trend we see with Under Armour in the US.

 

Social Commerce Increasingly Important to Retailers - The best way to market to the masses was through television. Then cable fragmented the TV audience, and then the Internet lured eyeballs away from TV sets. Now social media stands as one of the few places to reach a wide swath of consumers. That new marketing reality runs through the “2011 Social Commerce Study” released today by Shop.org, the online retail division of the National Retail Federation, and web measurement firm comScore Inc. The report finds that 77% of online adults use social networks and 54% of those consumers have followed a retailer on Facebook, Twitter or a retailer’s blog. The average consumer that has followed a retailer online tracks 6.3 of them. According to the report, consumers follow brands to find discounts (58%), learn about products (49%), read customer reviews (34%) and share information with other customers (30%). <internetretailer>

Hedgeye Retail’s Take: With more half of all customers engaged in following retailers on social networks, this study serves as yet another reminder for retailers still in the process of establishing a social commerce strategy that share is being lost by the day to more savvy competitors. Perhaps the most notable statistic from the study is that regardless of source (Facebook, Twitter, or Retail Blog), over 50% of shoppers click through to a retailer’s website from origination in the social network.

 

Mobile Check-in Usage Growing - Checking in to location-based services on a mobile phone is still not a mainstream activity, but adoption is increasing, especially among smartphone users—those most likely to use the apps that check-ins are typically tied to. According to comScore, 7.1% of all mobile users and 17.6% of smartphone users accessed check-in services in March 2011. Users of check-in services were more likely than the overall smartphone population to be female, under 35 years old and full-time students.  Female smartphone users’ adoption of the check-in is somewhat surprising in light of research on mobile privacy and security, which has sometimes found women are more sensitive than men to disclosing personal information like their location. Smartphone users who check in to location-based apps also indexed higher for participation in every other mobile activity studied by comScore. From overall browser and application usage to ad recall and mobile shopping activities, check-in service users are out in front of the general smartphone population. Check-in service users, for example, are 86% more likely to access mobile travel services than average smartphone users. Currently, check-ins still skew young, with only a third of current users ages 35 and older, but if app developers and their marketing partners continue to reassure users about the risks and rewards of participation that landscape could change. <emarketer>

Hedgeye Retail’s Take: At 7.1% of all mobile users, mobile check-in service usage remains in its infancy due in part to privacy concerns. Interestingly, one-third of users accessed online retail with the service who also proved to be 87% more likely to do so than smartphone users alone. These are compelling figures, but again off a base of only 7% of all mobile users, we suspect most retailers are still focused primarily on the basic blocking and tackling aspects of ramping e-commerce efforts.  

 

R3: FW M&A, Hermes, Social Commerce, & Li-Ning  - R3 5 31 11

 

 


CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP

Case-Shiller home prices officially double-dipped in the March data, reported this morning.  This was not a great surprise considering we saw the Corelogic HPI double-dip in January.  The Case-Shiller 20-city NSA series fell -0.77% in March versus February and -3.6% versus a year ago.  The MoM change was slightly better than February, which is to be expected given the seasonal pattern - home prices are generally stronger in the spring (March through June).

 

13 of the 20 cities hit new lows in March.  Home prices have been strongest in the highest-value markets, particularly D.C., New York, and Los Angeles.  

 

We've noted for several months an increasing divergence between the Corelogic HPI and the Case-Shiller HPI.  These series are not identical in scope and methodology, but the differences between them don't immediately explain the growing gap.  

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - all 3 yoy

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - all 3 mom

 

Based on our demand model, we expect 18% downside in home prices in 2011 versus 2010.

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - scatter

 

The charts below show the MoM and YoY change in Case-Shiller by city on an NSA basis.  18 of the 20 cities (all except D.C. and Seattle) moved lower MoM.  Looking at the YoY, D.C. was the only gainer.  

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - mom by city

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - yoy by city

 

We show below that the higher-priced cities are also seeing better performance MoM and YoY. 

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - mom scatter

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - yoy scatter

 

The chart below shows the Case-Shiller 20-city NSA index with YoY and MoM changes. 

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - nsa

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - c s yoy

 

As noted, home prices have a seasonal component, showing stronger performance in April, May, and June.

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - c s mom

 

Joshua Steiner, CFA

 

Allison Kaptur


TALES OF THE TAPE: TXRH, CPKI, WEN, RUTH, CHUX

Notable news items and price action from the restaurant space including our fundamental view on select names.

  • TXRH was raised to “Buy” from “Neutral” at SunTrust Robinson.  The 12-month price target is $21 per share.
  • CPKI signed a deal with San Francisco-based Golden Gate Capital.  Golden Gate will acquire the company for approximately $470 million, or $18.50 per share, in cash.
  • WEN was upgraded by S&P to “stable”.
  • Coffee drinkers are going to have to get used to higher coffee prices, if recent production numbers from Columbia are anything to go by.  The Colombian National Coffee Growers Federation’s Chief Executive Officer Luis Munoz said that demand will outstrip supply next year, keeping prices in the $2-3 per pound range for the next twelve months.
  • RUTH and CHUX gained on accelerating volume.

TALES OF THE TAPE: TXRH, CPKI, WEN, RUTH, CHUX - stocks 531

 

Howard Penney

Managing Director


Early Look

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WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB

Margin Debt Edges Closer to Prior Pre-Crash Highs

We are now publishing NYSE Margin Debt every month when it’s released.  Last week we got April data (as of month-end). This chart shows the S&P 500, inflation adjusted back to 1997, along with the inflation-adjusted level of margin debt (expressed as standard deviations from the long-term mean).  As the chart demonstrates, higher levels of margin debt are associated with increased risk in the equity market.  Our analysis shows that more than 1.5 standard deviations above the average level is the point where things start to get dangerous.  Currently, we are very close to that level – April margin debt hit 1.49 standard deviations above the average.

 

One limitation of this series is that it is reported on a lag.  The chart shows data through April.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - margin debt

 

This week's notable callouts include domestic and European financials CDS increasing.


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 2 of 11 improved / 4 out of 11 worsened / 5 of 11 unchanged
  • Intermediate-term (MoM): Negative / 3 of 11 improved / 5 of 11 worsened / 3 of 11 unchanged
  • Long-term (150 DMA): Neutral / 4 of 11 improved / 4 of 11 worsened / 3 of 11 unchanged

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - summary

 

1. US Financials CDS Monitor – Swaps widened across domestic financials, widening for 26 of the 28 reference entities and tightening for 2. 

Widened the most vs last week: GS, MET, PRU

Tightened the most vs last week/widened the least: JPM, PMI, MBI

Widened the most vs last month: GS, PMI, RDN

Tightened the most vs last month/widened the least: ACE, TRV, GNW

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe widened last week.  34 of the 38 swaps were wider and only four tightened.   

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - euro cds

 

3. European Sovereign CDS – European sovereign swaps rose last week, climbing 32 bps on average.  Greek CDS led the way higher, rising 7.4% before coming in somewhat early this week. 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.14 versus 7.12 the prior week. A data error or methodology change appears to be the cause of the step function in the Bloomberg series.  We are awaiting clarification on this shift.  

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index slid slightly again last week, ending the week at 1614 versus 1618 the prior week.   

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - lev loan

 

6. TED Spread Monitor – The TED spread continued to decline off its high last week, ending the week at 21.3 versus 21.7 the prior week.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index continued to bounce along the bottom, falling 1 point versus the prior week. 

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 15 bps versus the prior Friday.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1.  Last week spreads were flat at 101 vs 104 the prior week. 

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - markit

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Early in the year, Australian floods and oversupply pressured the Index, driving it down 30% before bouncing off the lows.  Last week the series gained 125 points.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - Baltic Dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened 4 bps to 259 bps. 

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  0.1% upside to TRADE resistance, 2.2% downside to TRADE support.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - May 31, 2011


When the top news story after a long weekend (and on the day of month end markups) is Greece being set free from the shackles of a free market pricing in default, you know this gargantuan Fiat Fool experiment is running long in the tooth.  Obviously, USD down, Euro up, on a sloppy news item like this puts The Correlation Risk right back on the table for June. That’s the TREND.  As we look at today’s set up for the S&P 500, the range is 17 points or -0.61% downside to 1323 and 0.67% upside to 1340.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 531

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1379 (+118)  
  • VOLUME: NYSE 692.69 (-18.13%)
  • VIX:  15.98 -0.68% YTD PERFORMANCE: -9.97%
  • SPX PUT/CALL RATIO: 1.20 from 1.76 (-31.72%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 20.72 -0.607 (-2.846%)
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 3.07 from 3.07
  • YIELD CURVE: 2.59 from 2.59 

 

MACRO DATA POINTS:

  • 9 a.m.: S&P/Case Shiller Home Price, est. down 3.4% Y/y, down 0.24% M/m
  • 9:45 a.m.: Chicago Purchasing Manager:, est. 62.0, prior 67.6
  • 10 a.m.: Consumer confidence, est. 66.5, prior 65.4
  • 10 a.m.: NAPM-Milwaukee, est. 60.5, prior 68.0
  • 10:30 a.m.: Dallas Fed Manuf. Activity, est. 8.0, prior 10.5
  • 11 a.m.: Export inspections: corn, soybeans, wheat
  • 11:30 a.m.: U.S. to sell $27b 3-mo. bills, $24b 6-mo. bills
  • 4 p.m.: Crop progress corn, cotton, winter wheat, soybean

WHAT TO WATCH:

  • Airlines gaining more revenue from add-ons to ticket sales - WSJ
  • American carmakers move focus to small cars - NYT
  • 3D films not jumping off the screen in North America anymore - NYT
  • WSJ says that higher capital doesn't solve all of banks' problems

 

COMMODITY/GROWTH EXPECTATION


THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Commodities Snap Best Winning Streak Since 1980 on European Debt, China
  • Aluminum Processors in China Told to Prepare for Power Shortages, CRU Says
  • Pork Imports by Korea Surging on Foot & Mouth Help Smithfield Foods Sales
  • Palladium Rising as BMW Becomes Catalyst for Biggest Shortage in 32 Years
  • Record Rice Crop May Let India End Export Ban, Capping Global Food Costs
  • Copper Advances on Japanese Manufacturing Growth, Greece Aid Speculation
  • Oil Gains for Second Day on Keystone Pipeline, U.S. Consumer Confidence
  • Juan Valdez Eyes China as Colombia Coffee Farmers Steer Asians From Tea
  • Wheat Declines Most in a Week as Russia Says it Will End Grain-Export Ban
  • Copper in London Declines, Set for Third Monthly Loss, on Growth Concerns
  • Rubber Has First Monthly Advance Since January on Outlook for Tire Demand
  • Australia GDP Likely Shrank for First Time Since 2008 on Flood Disruptions
  • Voestalpine Profit Rises Almost Five-Fold; Sees Additional Growth in 2012
  • European Commodity Day Ahead: Palladium Set to Rebound on Global Shortage

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • Europe is up because Greece didn't evaporate today? Greece +3.8% this morn, but still down -25% since February and BROKEN
  • Eurozone April Unemployment rate +9.9% vs consensus +9.9% and prior +9.9%
  • Eurozone May inflation estimate +2.7% y/y vs consensus +2.8% and prior +2.8%
  • France April consumer spending (1.8%) m/m vs consensus (0.3%) and prior revised to (1.0%) from (0.7%)
  • Germany April Retail sales +3.6% y/y vs consensus (0.1%) and prior revised to (3.6%) from (3.5%); Germany April Retail sales +0.6% m/m vs consensus +1.8% and prior revised to (2.7%) from (2.1%)

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIAN MARKETS

  • ASIA is seeing a strong mean reversion bounce to lower-highs across the region; China stopped going down +1.4%; Japan +2%, Korea +2.3%
  • Moody's places Japan's ratings on review for possible downgrade

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


Gopher Shrugged

This note was originally published at 8am on May 26, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It’s been proven that every business depends on every other business… so everybody ought to share the burdens of everyone else.”

-Orren Boyle (Atlas Shrugged)

 

While it’s hard to pinpoint exactly who each character in today’s emerging socialist state would be in Ayn Rand’s “Atlas Shrugged”, I’m very confident that Tim Geithner could audition for more roles than one. He’s trained for this for 47% of his life.

 

In Chapter 3 of “Atlas Shrugged”, titled “The Top And The Bottom”, Rand introduces the largesse of Big Government Intervention via a political panderer by the name of Orren Boyle who “had appeared out of nowhere, five years ago, and had since made the cover of every national magazine…”

 

Ah, to be on 60 Minutes… my life would finally have purpose…

 

“Disunity,” drawled James Taggart, “seems to be the basic cause of all social problems.”

 

“You said it, Jim. Disunity that’s the trouble.”

 

That conversation (pages 44-45) between a modern day bailout socialist (James Taggart) and Geithner (Orren Boyle) pretty much sums up how this country’s central planning board of directors thinks about things – in real-time.

 

Real-time? Yes We Can. Check out these comments yesterday by The Gopher (Geithner) about this country’s fiscal affairs:

  1. “Dark forces are waging a war of attrition against efforts to strengthen regulation of the financial system…”
  2. “They’re trying to starve the agencies of funding so they can’t enforce protections…”
  3. “Right now this is all theater… I think there are some people pretending not to understand…”

No – I could not have made up these quotes if I tried. Nor do I find them funny. Political “theater” like this is a national embarrassment. Our moving more and more to the left everyday has every capitalist in America subliminally losing confidence in how this is all going to end.

 

“Who Is John Gault?”

 

This is the world’s 2nd most influential book of all-time (according to a 1991 survey by the Library of Congress) next to the Holy Bible for good reason. There are socialists and there are capitalists. And there are politicians in your life - at work, school, and play – angling … and scheming… somewhere in between the socialist-capitalist spectrum.

 

Never mind “Who Is John Gault?” – maybe a better question is who are you in today’s edition of Gopher Shrugged? It’s an important question to ask yourself as we extend and pretend on the definition of a true free-market society.

 

Back to the Global Macro Grind

 

US stocks and commodities we’re up yesterday because the US Dollar was down. If you want to fix this “disunity” thing – for short-term political resolve - that’s pretty much the only way to do it (if you think getting stocks up is the answer that is). All these fat cats have to do is blow up the hard earned credibility embedded in America’s currency.

 

The problem with this solution to the problem – the problem that they created - is that when you abuse it (and I mean burn it), the “reflation” trade turns into The Inflation (and some loony guys making Reardon Macro in New Haven said INFLATION SLOWS GROWTH).

 

That’s the problem.

 

Dollar DOWN a smidgen yesterday = commodity inflation UP big time (up +1.5% on the CRB Commodities Index – a basket of 19 commodities). So take that “theater” at the pump this Memorial Day weekend folks, and like it.

 

There’s seemingly no juice left in The Gopher’s “agencies.” Market volumes are drying up. And the “dark forces” of market gravity associated with those God blessed things called supply, demand, and price have US stocks down for 4 consecutive weeks.

 

What are we pee-ons who are starting our own companies, on our own sweat capital, to do? Easy answer. Raise Cash in our portfolios so that we can be there … once again - like we were in 2008… to hire and creatively destruct all that is wrong with central planning.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1510-1533, $96-89-101.57, and 1310-1329, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gopher Shrugged - EL geithner

 

Gopher Shrugged - VP


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.

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