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Ichiro’s Coming Out of Left Field

Conclusion: Ichiro Ozawa’s exoneration affords him an opportunity to derail fiscal consolidation efforts in Japan – a key risk as relates to potential sovereign downgrades and a subsequent increase in bank capital requirements.



The title of this note is intended to be a pun on the name “Ichiro” – a name made popular in America by eventual hall-of-famer Ichiro Suzuki, who has manned the right field for my hometown Seattle Mariners for the past 11yrs. Unfortunately for Ichiro’s home country, Japan’s precarious fiscal and monetary policy situation have not and will not be relieved any time soon.


Taking a short-to-intermediate-term perspective, today’s exoneration of the other famous Ichiro in Japan (Ozawa) may move the country one step closer to the key intermediate-term catalyst in our Japan’s Debt, Deficit and Demographic Reckoning thesis: a sovereign downgrade to the single-A level and a subsequent increase bank capital requirements.


As mentioned in our 100-page slide deck, Japan’s VAT remains the key area of focus in the near term by the major international ratings agencies. To the extent the VAT isn’t passed/ Japan succumbs to further partisan gridlock and continues favoring short-term politics at the expense of the long-term health of the country, we would expect to see two or more of the agencies downgrade Japanese sovereign debt at some point over the NTM (though pinpointing timing can be difficult). The current session of the Diet ends in JUN, meaning that Japanese bureaucrats have until then to at least send a signal to the ratings agencies that they are indeed committed to fiscal retrenchment.


As it stands now, Ozawa, who remains one of the most influential members of the ruling Democratic Party of Japan (w/ influence over up to a third of the party by some estimates), opposes the DPJ’s VAT hike bill. His exoneration means he is now free to stir the pot and rally support to defeat the bill from within. Further, his platform centers on expansionary fiscal policy, which, in addition to wanting a shot at regaining full control of the Diet via a snap election, is preventing the LDP from coming to the table to negotiate with the DPJ on its VAT hike proposal.


A successful bid to slow discussions is a risk to the JGB market; during his 2010 attempt to overthrow then-PM Naoto Kan 10yr yields jumped +28bps  over brief span of eight days, as market participants feared a long-term acceleration in supply. Needless to say, there’s a lot more at stake this time around. Keep “Ozawa risk” on your radar as it relates to Japan’s probability of being the next domino to fall in our Sovereign Debt Dichotomy theme, as it is unclear to us how  much more patience the ratings agencies will have regarding Japan’s woeful fiscal outlook.


As always, we stand ready to answer any questions regarding our thesis; in the event you may have missed them come through, the relevant follow-up analyses are hyperlinked below: 


As we concluded in our APR 11 note titled “Will Pressure Bust Pipes in Japan”, risk in the JGB marketplace has been receding fairly dramatically in recent weeks – consistent with our view that you’re unlikely to see any material moves in this historically-bulletproof market in the absence of the catalysts above.


While the Nikkei 225 Index is now broken from an immediate-term TRADE duration,  the data would suggest that’s not necessary on the strength of JGB risk, but rather recent yen strength (+3.6% from its cyclical trough on MAR 14):


Ichiro’s Coming Out of Left Field - 1


Ichiro’s Coming Out of Left Field - 2


Japanese CDS (5yr tenor), have come in materially in recent months, falling -22% (-27bps) over the last two months vs. a regional median decline of -2.8%:


Ichiro’s Coming Out of Left Field - 3


Japanese L/T yield spreads have actually tightened in recent months:


Ichiro’s Coming Out of Left Field - 4


Japan’s latest LT/ bond auction posted stellar results; the 20yr sale was met with a bid-to-cover ratio of 3.3x (highest since OCT) and a sequentially-declining average yield of 1.71%. There still aren’t any signs of decreased demand for new JGB issues:


Ichiro’s Coming Out of Left Field - 5


The one risk we would flag is the combination of Japanese bank CDS widening alongside the underperformance of their public shares. Still, in the face of ebbing risk in the JGB market, it can be argued that this is a natural byproduct of weakness in Japanese equities and equities globally:


Ichiro’s Coming Out of Left Field - 6


Net-net-net, JGB risk is clearly taking a back seat for now, and as Keith has remarked in the past, “credit risk is not a factor until bonds start going down in price”. That said, however, we have yet to get to and through a few noteworthy catalysts, so we wouldn’t feel comfortable dismissing this risk it in its entirety. We’ll be sure to flag to you in real-time if and when the markets begin signaling to us that intermediate-term JGB sell-off risk is firmly back on the table.


Additionally, we remain long-term bears of the Japanese yen, as we ultimately expect the policy prescriptions that are likely to be introduced to address Japan’s woeful economic outlook and [potential] sovereign debt crisis will lead to JPY weakness vs. peer currencies. You could, however, see some yen strength over the short-to-intermediate term if we prove right on our call for a global growth slowdown to impact liquid asset prices globally over the intermediate term. The chart below highlights the relationship between global interest rate differentials and the yen’s spot price vs. various currencies – a particularly strong relationship we’d expect to continue absent a material increase in near-term Japanese sovereign debt risk.


Darius Dale

Senior Analyst


Ichiro’s Coming Out of Left Field - 7

CRI: Conference Call Takeaways

CRI trumped the high end of its own guidance as well as expectations by more than a dime this morning and provided 2Q EPS guidance 40%-70% above the street. Despite the full year Sales/EPS increase reflecting 1H outperformance, the implied 2H earnings remains 6%-12% below the street. Additionally, we can’t ignore that organic EPS was down year over year and although 2Q revenue guidance suggests a sequential reacceleration in the top line, the incremental Bonnie Togs revenue trails off in 2H which will return organic growth to +MSD from the low teen levels it sits at today.


Below are the Key Takeaways from the call this morning as well as the deltas between the forward looking commentary provided on the fourth quarter call and this morning's F12 guidance update.


Note: Commentary below is from the CRI Fourth quarter conference call, comments in red reflect any deltas on the margin following this morning’s Q1 update:



Financial Guidance (Headed into 2012)


First Quarter Guidance:


"For Q1, which is one of our lighter volume periods, we’re expecting good revenue growth in the range of 11% to 13% over Q1 last year" 1Q12 Revenues +18%


"We expect that adjusted EPS for Q1 will be in the range of approximately $0.38 to $0.43 compared to an adjusted $0.56 last year " 1Q12 EPS $0.56



Full Year Guidance (provided on the fourth quarter call relative to this morning’s update):


"For the full year, we expect net sales will increase 8% to 10%" Increased to +9%-11%


"And adjusted EPS will increase 15% to 20% over this year’s adjusted result of $2.09" Increased to +20%-25%


"If we are successful maintaining our pricing, our operating margin should improve meaningfully in H2 this year" On Track, Margins expected to exceed 10% in F12 vs. ~9% in F11, long term goal of 14% (4-5 years)


"We now expect eCommerce sales to exceed $100mm in 2012" CRI delivered E-Commerce sales of $29 in 1Q12


"We expect improvement in profitability for H2 and for the year" Unchanged- Product costs expected to be down 10% in 2H


"Our goal over the next five years is to grow OshKosh sales to $500mm with a 10% to 12% operating margin compared to the 8.5% operating margin it achieved in 2010" Unchanged


"In 2012, we expect our total CapEx to be in the range of $90mm to $100mm, which we expect to fund from strong cash flow from operations" Unchanged





Key Takeaways from the Call:



Quarter in Review:


Revenues: +17.6%

  • US Sales: +11.3%
  • Carter's Brands Sales: +12.4%
  • Retail: +29% (Comp +6.7%, ASP +11.4%, # trans +2.6%)
    • Ended w 372 stores
    • E-commerce sales: $23mm, +$14mm YoY
    • Wholesale +3% (units -7%, ASP +11%)
      • Fall bookings planned +LSD-MSD
  • OshKosh Sales: +5.7%
  • Retail: +7% (Comp +4.7%, ASP +11.7%, # trans -0.3%)
    • Ended with 168 stores
    • Wholesale: +1% (units -16%, ASP +20%)
      • Fall bookings planned -LSD
  • International: now represents 9% of sales vs. 3% last year (Comp +13.6%)
  • Existing wholesale business grew by over 20%
  • Royalties down $500K relative to last year driven by loss of former Bonnie Togs licensee


 Gross Margin: +165bps

  • Off-price sales dropped nearly 70% due increased effectiveness of promos
  • Greater penetration in DTC positively impact margins
  • Canada is a higher gross margin business
  • ASP positive across all business segments


SG&A:  +31.2% (+278bps as % of sales)

  • Increase due to Canada Acq, 45 net new stores, higher 2012 performance compensation, e-comm investments & Marketing spend


EBIT Margin: -153bps


Inventories: +22%

  • Higher product costs contributed 14 points of 23% growth
  • Timing of Product launch accounted for 12 points of growth
  • Canada Acq added 11 pts of growth
  • Inventory management offset 15 points of growth





Second Quarter:


Revenues: +20% vs. +13E

  • Growth to be led by Canada, Carter's Retail, E-commerce


EPS: $0.26 to $0.30 vs. $0.18E


Inventories: projecting 2Q ending inventories to be down 10% to 15% in dollars and 10% in units


Full year:


Sales:  Increased to +9%-11% ($2.3bn) vs. prior +8%-10%

  • Wholesale sales will be impacted by a meaningful reduction in off-price selling


EPS: Increased to +20%-25% vs prior +15%-20% vs. +19E


EBIT Margin: Expect to be up over 10% this year vs. last year


OshKosh wholesale full year sales excluding off-price planned comparable to LY, total sales guided down -5%


Product Costs expected to be down 10% in 2H


Capex: $90-$100mm


Operating Cash flow at the upper end of $180-$200mm range


Inventories: projecting year end inventories to be flat in dollars and +MSD in units



Store Additions/Miscellaneous:


F12 additions:

Carters: 63

OshKosh: 7

Canada: 18


Expect to open 100 stores in Canada over the next 5 years


On track to launch wholesale brands in Canada at Target in early 2013


Planning growth in sales/profitability in OshKosh in 2012 weighted towards 2H12




Q&A Rundown:


April Trends:

  • Is pretty much on plan, slightly slower due to the shift in Easter
  • On a combined basis, both brand comps tracking +1.5%-2%
  • Overall, very much in line with both top line and operationally 

OshKosh Performance:

  • Mall based store performing at the top of comp range
  • Mall store first quarter comp was 12%
  • First quarter OshKosh costs were up over 28% due to supply chain strategy
  • Brand is currently a $400mm business with low operating margin - expect the brand to be $500mm over next next 4-5 years with a 10%-12% EBIT Margin


  • Strong Canadian comps driven in part by lower competition
  • No major wholesale presence in Canada until Target next year


  • Carter's wholesale growth has been inline with expectations
  • Off price selling is way down
  • Off price selling has represented ~1%-2% of total sales
  • Wholesale customers are being conservative on inventory commitments


  • Expecting peak revenues at WMT in 2012 near $150mm vs. prior 2008 peak of $146mm

 AUR/Unit growth in 2H:

  • Biggest challenge in product cost increases was in 2H11, raised prices about 10% as an offset (less than $1.00 given CRI AUR)
  • Cost pressures continued into 1H12, Fall pricing will be similar with Fall pricing in 2H11
  • Have reinvested some of cost benefits into product which has resulted in sharper price points
  • Toughest category in terms of pricing has been sleepwear (most price sensitive)
  • Will not be putting all of cost reductions in 2H back into earnings, some into product
  • Expecting margin expansion this year- 9% LY should exceed 10% this year

 JC Penney:

  • Looking at prototype designs for new stores
  • Staying very close- relationship is excellent
  • Hoping they're successful with their new strategy

 Gross Margin Swing:

  • Big driver was mix shift with greater penetration in DTC
  • Canada is a very high GM business
  • lower off price sales

 Q2 Revenue Drivers

  • Expect wholesale to tick up
  • Contribution from Canada which is incremental to last yr for one more quarter
  • Easter pulled a little bit of volume forward and some of the revenue expected in Q3 may be pulled into Q2

 Sales/Square Foot in Carter's Stores:

  • Average store basis: $408
  • Believe there is upside to the current metric
  • Have reduced the density of the store by removing fixtures in the store which improved the flow through/experience in store

 Marketing Initiatives for the year

  • Direct mail has been working and will build on these in F12
  • Continue to build on Social Media
  • Have invested in systems around customer relationship management 


CRI: Conference Call Takeaways - CRI SIGMA


In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance.



OVERALL:  BETTER - HOT's results came in above the high of company guidance. The outperformance was driven by better results across all segments of their business: owned, leased, and consolidated JV, fees and higher contribution from Bal Harbour. 



Here is the report card evaluating actual results against management's previous assertions. 

  • FY 2012 OUTLOOK
    • SLIGHTLY BETTER:  HOT raised RevPAR by 1% and lowered some below the EBITDA line items, however, the raise on Adjusted EBITDA and EPS for the year was basically a carry-through of the beat in 1Q
    • SAME:  Supply continues to be tight and will remain so in the near future.
    • WORSE:  SG&A growth was taken up by 1% on the low end of HOT’s guidance range.  In the quarter SG&A was up 20% YoY or 11% excluding the $3-4MM of non-recurring items  and a $3-4MM reversal the company guided to in 4Q. 11% is a lot higher than prior guidance of +3-5%.
    • SAME:  About $5MM in the Q
    • BETTER:  2Q12 will be better than 1Q12.  Booking windows are returning back to normal.  REVPAR is tracking at +4% in April they expect it to come in at +4% in 2Q
    • SAME:  Canada remains sluggish as it dragged North America REVPAR by almost 200 bps.  The strong Canadian dollar has had a negative effect on their big box hotels in Toronto.
    • BETTER:  HOT's earlier optimism played out well in 1Q as their Mexican resorts 1Q REVPAR grew 17% as US travelers returned    
    • LITTLE WORSE:  Corporate rates are trending up 6%, on the low end of previously given "mid to high single digit" guidance. 
    • SAME:  Group was up 5% in 1Q.  Management had indicated previously that the group pace was going to be in the mid-single digits in 2012.
    • SAME:  "Transient rates continue to climb as momentum remains robust" 

    • SAME:  Latin America is still expected to be the strongest RevPAR growth region followed by Asia, NA, Europe and ME&A in last place
    • SAME:  HOT still expects the dollar will be a headwind to pull down REVPAR by 200bps 
    • SAME:  HOT saw big jumps in March RevPAR as the region started to lap some easy comps. 
    • SAME:  Business remains stable with interval sales and revenues up. HOT reaffirmed its 2012 cash flow target of $125 million
    • BETTER: Raised EBITDA forecast by $20MM, which mostly reflects $18MM of higher than expected EBITDA in 1Q12.  The company also increased the project’s cash flow expectation by $50MM to $300MM for 2012
    • SAME:  “Cash taxes in 2012 will be approximately $100 million."
    • SAME:  “$575 million in 2012, $200 million in maintenance and IT capital, and $375 million in ROI projects.” 
    • SAME:  "Holding the line on costs" remains HOT's mottoo

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The lodging train keeps-a-rolling.  Not much doubt we are going to continue to see quarterly beats



“Our momentum picked up in the first quarter. Going into the year, we said that 2012 was more likely to surprise on the upside. So far, that is playing out. More importantly, we remain very bullish on the long-term. Seemingly unstoppable demographic and economic trends are fueling global growth in demand for high end travel. Rising wealth around the world and globally interconnected businesses will lead to ever more travel.”


- Frits van Paasschen, CEO




  • Still believe that 2012 is more likely to surprise to the upside than downside.  All of their customers plan to travel more in 2012 than 2011. 
  • Financial markets are pricing in some pretty bad events: China hard landing and Eurozone turmoil
  • Low supply in lodging is helping them sustain RevPAR growth.  Supply is likely to remain low:
    • Hotels are still selling below replacement costs so it's still cheaper to buy than build
    • Still hard to get construction loans
  • Japan's occupancy has already bounced back to pre-crisis levels
  • Despite the world's uncertainties, their results are better than ever.  They believe that they are on the cusp of a golden age in lodging.
  • Expect their best ever performance in rooms growth in 2012
  • Sees widespread growth across emerging economies.  Expect to grow their Malaysian footprint by 40%.  Growing their Thailand footprint by 20 hotels over the last nine years.
  • Demand for timeshare held steady with higher tour volumes and close rates, helped by strength in Hawaii
  • Sales at Bal Harbour continue at sales per square footage above pre-crisis levels
  • During 1Q, all 3 ratings agencies upgraded HOT's rating to investment grade.  Goal is to retain their investment grade rating even under the worst case scenarios.
  • Plan to return excess cash to shareholders
  • Luxury travel outlook/commentary:
    • # of ultra high-end households increased by 30% since 2006
    • Luxury travelers want more differentiated experiences which is what their various brands look to achieve
    • Have 28 St Regis hotels growing to 31 in 12 months, up from 14 hotels four years ago
    • Investing $100MM to restore some of their luxury hotels
    • 90% of their pipeline lies outside of the US
    • UUP brands benefit from their luxury portfolio for SPG members
  • In every region they are seeing an accelerating in business momentum
  • N.A. commentary/outlook: 
    • Supply under 0.5% for the past year with no signs of picking up.  Their occupancies are back to prior peak, which should allow them to drive rate
    • Corporate negotiated rates are up 6%
    • Group pace is up 5%
    • Business continues to shift away from discounted business
    • Q2 RevPAR is on track to be better than 1Q
  • Europe commentary outlook:
    • Seeing improving RevPAR trends in 2Q - tracking at a 4% RevPAR level in April and expecting 4% RevPAR in 2Q
    • Expecting a shallow European recession and are more optimistic on Europe's outlook
    • Absence of new supply helps them.  Occupancies ex Greece, are only 100bps below peak 2008 levels
  • Asia: accounts for > 20% of their rooms and 60% of their pipeline
    • RevPAR growth remains robust
    • Expect a sequential RevPAR acceleration in 2Q
    • Pace of openings in China remain strong
    • Indonesia and Korea are booking up 15% in Q1
    • Expect Asia to finish 2012 as their second largest department accounting for 20% of profits
  • ME & Africa
    • Business is still weak in Egypt
    • Expect growth to accelerate in Q2
  • Latin America is their fastest growing region in 1Q
    • Mexico is recovering as US tour groups are returning to that market
    • All indications point to the fact that LA should remain their fastest growing region
  • Canada had a 200bps drag on NA RevPAR as the strong CAD $ is hurting US convention busienss
  • Renovations impacted the Q by $5MM
  • VOI: remains stable. Cash profile improves. Default rates continue to decline to 4.2% in 1Q - which is the lowest rate since 2007.  
  • Bal Harbour: 32 units sold but not yet closed, project will be over 50% closed at the end of 2Q.  Sales momentum looks good with 20 news sales in the Q.  Seeing a sharp increase in NA buyer interest.  Condo sales are being helped by association with the St Regis brand.
  • Remain steadfastly focused on holding cost.  With growth only driven by emerging market growth.
  • Expect net room growth to approach 5%
  • In talks to sell a few assets which they expect to close later this year.  The market is not deep enough to sell a large portfolio of assets.
  • Continue to evaluate acquisition opportunities
  • Want to achieve a BBB rating - one notch higher than where they are today. Leverage target is 2-2.5x as rating agencies calculate it
  • Dividend payout policy of 25-40%
  • Anticipate another cycle of returning significant cash to shareholders



  • The Le Meridian transaction really represents the best example of the type of acquisition opportunity that they are interested in
  • Expect 60% of RevPAR to come from ADR for the balance of the year. Feel like they are close to an inflection point in ADR increasing since occupancies are at peak rates already.  Mix shift is changing for the positive and the business on the books from depressed periods is rolling off. 
  • They have never been at an occupancy level so high with the supply growth outlook so low. Therefore, they believe that they should have some strong rate growth in years ahead.
  • They are in conversations on the sale of a few assets.  It's 1-2 single transactions, similar to 2011
  • Incentive fees are being helped by the fact that the bulk of fees (90%) are derived outside the US 
  • Bal Harbour - on track for cash generation and the guidance from their investor day is still good.  Will update guidance later this year.
  • Impact of conversions in Germany: couple of hundred basis points
  • Internationally most of their hotels pay incentive fees (70-80%); in the US, it's probably 30-40% (they need to check)
  • Most of the upside in Bal Harbour is driven by better closing pace and some by better pricing
  • They probably have to pay down a few hundred MM of debt to get to their target ratios
  • Some of the rate "compression" that their numbers may be reflecting include FX and openings in emerging markets which may have lower rates too 
  • Bal Harbour - sold 20 units in the first quarter (50/50 NA vs. foreign buyers) in 2Q sales will be more driven by foreign buyers.  Most of the sales that they have closed on are on sales done in the past. 
  • SG&A - reversal was about $3-4MM and another $3-4MM of one-time items. 
  • 70% of the deals in the NA pipeline are from conversions and those tend to happen more quickly
  • The first quarter is a very light quarter for Europe so the 1Q trends aren't usually that important. The current trends for April and 2Q are more indicative.
  • They like controlling their own VOI business and have no plans to spin it out for now



  • 2012 Guidance Changes (if its not mentioned it means there was no change vs. proir guidance):
    • EBITDA was raised by $10MM; basically just carrying through the beat in 1Q to $1.07-$1.1BN (ex Bal Harbour)
    • SS Company Operated WW RevPAR by 1% to 6-8% on a constant $ basis
    • Raised fee growth by 1% to 9-11%
    • Raised SG&A growth by 1% at the low end of guidance to 4-5%
    • Raised Bal Harbour's EBITDA contribution by $20MM to at least $100MM - $18MM of the raise is just a carry through of coming in higher in 1Q
    • D&A $5MM lower to $295MM
    • Lowered interest expense by $2MM to $210MM
    • Raised EPS guidance by 13 cents (including Bal Harbour) to $2.35 to $2.46. The beat in 1Q was 14 cents vs. the midpoint of HOT's guidance
    • Raised the amount of cash expected to be generated by Bal Harbour by $50MM to $300MM
  • Midpoint of 2Q Guidance is in line with the Street:
    • EPS: $0.58 to $0.60 (Street: $0.60)
    • Adj EBITDA: $275-285MM (ex - Bal Harbour) and $15MM additional for Bal Harbour (Street: $296MM includes BH)
    • SS Company-Operated WW (constant $): 6-8% (-200 bps less adj for currency)
    • SS Company-Owned WW (constant $): 4-6% (-250 bps less adj for currency)
    • Fees: +9-11% ($221MM at the midpoint vs. Street at $219MM)
    • D&A: $72MM
    • Interest expense: $53MM
    • Tax rate: 30% 
  • EBITDA ex-Bal Harbour came in $219 above HOT's guidance of $205-215MM
  • RevPAR performance: 
    • WW System-wide RevPAR: 5.8% (6.2% constant $)
    • NA System-wide RevPAR: 7.1% (7.2% constant $)
    • Owned RevPAR: 4.5% (4.9% in constant $)
  • In 1Q, HOT signed 32 hotel management and franchise contracts (9,000 rooms), and opened 18 hotels (~4,500 rooms)
    • 22 new builds / 10 conversions
    • 5 properties (1,000 rooms) were removed from the system
  • Pipeline of 95,000 rooms/ 365 hotels
  • Special items in the first quarter of 2012 included an $11 million (pre-tax) reduction of a legal reserve, partially offset by a $7 million (pre-tax) loss on the sale of one wholly-owned hotel.
  • Fee YoY comparisons were impacted by the conversion of some franchise agreements to management contracts in Germany
  • 1Q owned, leased, and consolidated JV results, were negatively impacted by 5 asset sales and Bal Harbour pre-opening expenses
  • Originated contract sales of vacation ownership intervals increased 1.2%, primarily due to increased tour flow from new buyers and improved sales and marketing performance. The number of contracts signed increased 3.6%, when compared to 2011, and the average price per vacation ownership unit sold decreased 2.4% to approximately $16,000, driven by inventory mix.
  • Bal Harbour 1Q12: 
    • Closed sales of 102 units and realized cash proceeds of $263MM
    • Through March 31, 2012... closed contracts on approximately 45% of the total residential units
  • During the quarter, the Company completed the sale of one wholly-owned hotel. This hotel was sold subject to a long-term franchise contract


Survey Says: 382k Jobless Claims = S&P 500 1,335

Initial jobless claims were 388k this past week, marking the third week in row at roughly that level (388k, 389k, 388k). The print was technically down 1k from last week's 389k, but that's after last week was upwardly revised by 3k. Apples to apples, it was up 2k vs. the prior week. This brings the trend in the rolling series to 382k, a 6k increase over the prior week. These results are bad, quite frankly. For reference, rolling initial claims bottomed at 354.75k on Feb 24, 2012. In the last two months, rolling claims have risen by 27k, or 7.7%. Ordinarily, that would be good for a commensurate decline in the market, but the strength of Apple's earnings seem to be keeping the market propped up for now. 


We continue to expect weakness in this claims series for seasonal reasons as we move into the summer months with claims likely peaking in the July/August timeframe. As such, we would expect the market's vulnerability to external shocks like Spain, Iran and other factors to increase in the face of weakening domestic data. For more on this, see our recent note entitled: "Why History Keeps Repeating (Or At Least Rhyming)".


For reference, based on the chart below, which demonstrates the cointegration of the S&P 500 with claims, fair value on the market based on rolling claims at 382,000 is 1,335 (vs. ~1,390 currently). 














2-10 Spread

The 2-10 spread widened less than a basis point versus last week to 172 bps as of yesterday.  The ten-year bond yield increased 1 basis point to 199 bps.






Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 




Joshua Steiner, CFA


Allison Kaptur


Robert Belsky


Having trouble viewing the charts in this email? Please click the link at the bottom of the note to view in your browser.


The Macau Metro Monitor, April 26, 2012




  • Construction of Phase 2 began in 1Q 2012. Scheduled to open mid-2015.
  • Funding HK$16BN through a combination of existing cash and cash generated from operations and debt.  Does not intend to issue equity.
  • Phase 2 will include:  
    • Over 1,300 additional hotel rooms & suites: 
      • JW Marriott (1,100 rooms)
      • Ritz-Carlton Macau (250 suites)
    • Gaming: 30k sqm, up to 500 tables & over 1,000 slots
    • 45 additional F&B outlets
    • Over 65k SQM of retail space/ +160 retail shops
    • Meeting, event and banquet space to accommodate 2,000 more patrons


According to Jornal Tribuna de Macau, the Cotai land grant contract between Wynn Macau Ltd and the Macau government will be closed next week, with final approval of the land concesssion on Monday, April 30. 

Jornal Tribuna de Macau says the public announcement of the deal may not be immediate.  Both parties will likely wait for the contract to be published in the Official Gazette, which is expected to happen in the second week of May.

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 80.51%
  • SHORT SIGNALS 78.32%