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Headline Of The Week:

"Hedge Fund withdrawls surge to $43B in September" -FT

I know, I know... we had this call 9 months ago... so I will let the media take it from here.

However, one quote comes to mind when I think about all of the pushback that I got from the said industry savants:

"Nobody is thinking of you... unless you tell them about their faults...
Then you can be sure that they are thinking about you...
They are thinking about killing you!"
-Roger Rosenblatt (PBS and Time Contributor)

I, and many of you, have been overpaid to analyze industries with a fine tooth comb. Why it was so contrarian to take a step back and analyze our own industry from a supply perspective will remain a question in my mind for the rest of my life.
KM

US Market Performance: Week Ended 10/17/08...

Index Performance:

Week Ended 10/17/08:
DowJones +4.8%, SP500 +4.6%, Nasdaq +3.8%, Russell2000 +0.8%

October & Q408 To Date:
DowJones (18.4%), SP500 (19.4%), Nasdaq (18.2%), Russell2000 (22.5%)

2008 Year To Date:
DowJones (33.3%), SP500 (36.0%), Nasdaq (35.5%), Russell2000 (31.3%)

UA: Maintaining Dominance in Compression

I’m always fascinated by the market share trends in the Compression category – the place where Under Armour made its mark. The key call out above all else is that despite virtually every brand placing a massive bulls-eye on UA’s back, its share has held in remarkably well at about 76% of the space (which is still growing double digit, by the way). Nike stands at about 17% -- which represents a 2-3 point gain from a year ago (on a ttm basis) – proving that Nike is the only brand that could give UA a run (or a jog) for its money in the compression arena. The two trade off share points rather consistently (See Exhibit 1), but UA still maintains 4.5x the share as Nike at a time when Nike will incrementally shift resources toward combating UA in footwear. Bottom line is that UA remains squarely in the pole position here.

Perhaps the biggest point is that no other brand has greater than 2% of this space. No kidding… Adidas and Reebok own the NFL license, and have some other incredibly valuable sports marketing assets in the US (Notre Dame, The Yankees, David Beckham, Yao/McGrady, etc…) – and have combined share of less than 1%. Is this a massive opportunity for Adidas? Yes. But it was an opportunity as well 3 years ago and its share has actually been cut in half during that time period. When an ‘opportunity’ remains present for that long, I consider it a ‘failure.’

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Making a bad situation even worse

I was struck by the recent 8K filing by Buffets Holdings, Inc. Earlier this year, Buffets filed for bankruptcy under a mountain of debt, rising commodity prices and a sluggish consumer. At the time Buffets filed for bankruptcy, the credit crisis had not yet hit full stride. If Buffets were to file today, my bet is they would be in liquidation and not battling for survival. The Buffets 8K disclosed that lenders needed to amend the DIP credit agreement so the company would not be in default.

This highlights a big problem; companies seeking bankruptcy protection have a new hurdle: finding money to survive the bankruptcy process. While Buffets has some financing to survive for now, it sure looks like it’s over for that concept.

If banks are not lending to healthy companies, who is going to lend to bankrupt companies? The frozen credit markets are going to limit lending to struggling companies that need loans just to make it through Chapter 11 restructuring. Without the debtor-in-possession financing, companies filing for bankruptcy might not have any choice but to liquidate. This issue was made clear by Bennigan’s and Linens 'n Things, which was forced to liquidate last week.

SHLD: The Blue-Light Predatory Layaway

Am I the only one who thinks it is bad form for Lampert & Co to bring back the ‘Layaway Plan’ at the exact time where consumers should be dialing back spending, not reserving things that they can’t afford? Kmart is launching broadcast spots for its new initiative this week, with print ads beginning in November. At least the company will be able to attach a customer name tag to the 100+ days of inventory sitting in trailers in the rear parking lot. I think I know retail at least as well as the average guy on the Street, and I still can’t figure out why this ‘company’ exists.

THE DOUBLE PCE WHAMMY TO GAMING

I’ve updated the PCE chart from my 08/08/08 post, “SCARY MACRO CHART FRIDAY”, that showed gaming would suffer a $20bn loss just on mean reversion of gaming spend % of PCE. Gaming was more levered on the upside to housing than other consumer sectors and could be on the downside as well.

Personal consumption expenditures have been a rocket ship over the past 20 years. Gaming revenue growth has been even more impressive. Gambling spend accelerated from 0.3% of PCE in 1990 to a peak of 0.94% in December, 2006. The trend broke soon after that all the way down to 0.79% in June of 2008. As a point of reference, if gambling reverts to the mean since 1990 of 0.6%, revenues would fall by $20bn annually or over 20% of the current level. This trend could be a double whammy in a prolonged consumer slowdown.

PCE likely to fall as is gaming's share. Ouch

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