Not Everything China Is Equal: Selling Our EWH Today...

We have expressed our bullishness on China via both the EWH (Hong Kong) and FXI (China) etfs. After big runs in their respective domestic markets, we are selling one, and sticking with the other. Not everything China is created equal.

While this morning's GDP report out of HK wasn't new news, it inspired many questions in our models with regards to how bad HK can still get while the Chinese domestic consumption story improves. Obviously HK is much more levered to Wall Street and London than inland China is. The answers we are seeing initially are not positive enough for us to hold the line long EWH here.

As the facts change, we will. To put the Hong Kong +1.7% GDP growth print in historical context, we have attached the chart below.

German Inflation Continues To Abate...

Below is the chart of Germany's year over year consumer price inflation (CPI). This morning's report showed another month/month decline. It looks increasingly likely that Germany's inflation rate will approach 1-1.5% year over year growth within the next 3 months.

This, on the margin, is bullish for German Equities.

We remain long Germany via the EWG etf.

Eye on Leadership: Phil Falcone

We wanted to highlight Phil Faclone’s testimony in front of Congress yesterday. While Keith and I may be biased since we come from small town, blue collar roots and are former college hockey players (sorry Phil we had a winning record against Harvard when we played at Yale), his is a track record that is difficult to disparage. Phil has built one of the most impressive hedge funds in history.

The path from Chisholm, Minnesota was a not easy one, no doubt, and as Phil outlines below, he has suffered his share of bumps along the way. But at the end of the day, his hard work, integrity, and a process have led him to incredible success. We also have the pleasure of knowing a few of Phil’s colleagues and it is pretty obvious that success hasn’t changed the man. As they say, you can take the man out of Chisholm, but you can’t take the Chisholm out the man. Indeed.

Daryl G. Jones
Managing Director

“I would like to take just a moment to tell you a bit about myself. I currently reside in
New York City with my wife of 11 years and two children. By way of background, I was
born in Chisholm, Minnesota, population 5,000, on the Iron Range in Northern
Minnesota. I was the youngest of nine kids who grew up in a three-bedroom home in a
working class neighborhood. My father was a utility superintendent and never made
more than $14,000 per year, while my mother worked in the local shirt factory. I take
great pride in my upbringing, and it is important for the Committee and the public to
know that not everyone who runs a hedge fund was born on 5th Avenue - that is the
beauty of America.

I attended Chisholm Senior High and went on to Harvard University, where I received an
A.B. in Economics in 1984. After college, I pursued my first love, hockey, although an
injury cut short a professional hockey career abroad. I then moved to New York and
began working as a high-yield bond trader at Kidder, Peabody. A few years later, at the
age of 28, I teamed up with a friend to complete a leveraged buyout of a small company
based in Newark, New Jersey. Unfortunately, the recession in the early 1990's made that
venture quite difficult. As a result, by 1994, I was so 'financially challenged' that the
power in my apartment was shut off because I could not afford to pay the electric bill.
That experience, as painful as it was, stayed with me over the years and taught me several
valuable lessons that have had a profound impact upon my success as a hedge fund

Through hard work, and perhaps a little bit of luck, Harbinger Capital Partners has been
able to generate substantial returns for our investors since 2001. Our investment
philosophy is very simple; we study, often for months, the fundamentals of companies to
identify those that are undervalued or overvalued, and we act decisively when
opportunities present themselves. We are not momentum traders, nor are we day traders;
we are investors. It is not magic. My analysts perform thorough due diligence, rather
than relying on ratings agencies or other research reports -- like many of the reports that
improperly valued securitized mortgage products over the past few years.”

Philip A. Falcone
Senior Managing Director and co-founder of Harbinger Capital Partners
Testimony to Congress
November 13, 2008

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%

US Consumer Confidence: Here comes Jimmy!

This morning's University of Michigan consumer confidence report gives us the most current reading on November... like Jimmy Braddock, the US consumer is coming back from the cold mat. The report improved, barely, but the point is that it improved to 57.9.

Consumer confidence in the USA bottomed in early October of 2008. Until I see a fact to support otherwise, that's one more reason why the October lows in the S&P500 can hold.

Everything that matters in our macro model happens on the margin. On the margin, this report registers a winning round for the bull who believes in Jimmy and that the this narrative fallacy of an 09’ Great Depression won’t keep him down and out.

Casual Dining – October Traffic Trends

Casual dining same-store sales declined 6.1% versus down 1.1% a year ago. This represents a 230 bp sequential decline from September’s number. Most of this decline was driven by the continued fall off in traffic, which accelerated its declines in October, down 8.2%.


Market shares were remarkably consistent in October versus the previous few months. In terms of rolling chip (RC) volume, the only big movers were Crown (MPEL) and SJM. Crown continued its decline, dropping to around 12% from 14% in September, and well off its high of 20% in April. SJM was the main beneficiary of Crown’s woes. The other companies maintained September’s market share. MGM seems to have found its way in the RC business in maintaining its all-time high market share of 7% achieved in September.

Turning to mass market (MM) revenue, Wynn Macau lost a little market share to MGM, Crown, and SJM. It is unclear whether hold percentage played a role. Wynn Macau’s total Baccarat revenue share (MM and RC combined) declined to 17% in October from it 2008 high of 19% in September. Wynn held very high in September relative to the market. October was consistent with the YTD average of 17%. LVS’s MM market share remain consistent with the past few months although total Baccarat market share dropped sequentially from 28% to 25%. Similar to Wynn, September’s share was boosted by a low RC hold percentage for the market relative to LVS. The opening of the Four Seasons in August has kept market share at 25% or higher the last few months.

Overall, I think October was a fairly uneventful in terms of market share shifts. Visa restrictions continue to have an impact on the overall market but recent share trends seem to be holding.


Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.