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HedgeyeRetail COTD: Look Forward

 

Margins look good today, so order more stuff to sell tomorrow.

 

Almost every retailer will admit that consumer prices for apparel and footwear have finally broken back up through zero barrier. As we’ve been noting, their margin outlook for 2H is uniformly positive. But check out container traffic at the port of Long Beach… As the Revenue/cost spread (CPI less Import Costs – the inverted yellow line in this chart) improves, we’re seeing container traffic – a very good proxy for retail import activity – is setting higher highs and higher lows. Translation = margins look good today, so order more stuff to sell tomorrow. 

 

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CHART DU JOUR: FROM GREY TO BLUE

  • Younger generations aren't gambling as much
  • Casinos and slot makers have been trying for years to attract sub-Baby Boomer generations, to no avail
  • Baby Boomers can’t live forever

CHART DU JOUR:  FROM GREY TO BLUE - LV



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TWO SCHOOLS OF THOUGHT PART II

CONCLUSION: We continue to view a sustained breakout in the USD as the most asymmetric and contrarian outcome facing global financial markets over the long-term TAIL.

 

RELATED THEME(S): The Last War: Fed Fighting; Asymmetric Risks

 

Last AUG, we published a note juxtaposing the ideology of the Reserve Bank of Australia’s Glenn Stevens with that of our very own Ben Bernanke titled, “TWO SCHOOLS OF THOUGHT”. The conclusion of that piece read: “Call us dogmatic, but we continue to stand by our belief that currency debasement in the form of deficit spending, debt buildup, and Indefinitely Dovish monetary policy is not supportive of the long-term prosperity of America.” We reiterate that view.

 

Overnight, we received additional commentary from Governor Stevens that further sheds light upon the asymmetric setup in US monetary policy: 

  • “The intended effect of recent policy actions [-125bps of cuts] is certainly not to pump up speculative demand for assets. Our judgment is that the risk of re-igniting a boom in borrowing and prices is not very high, and this was a key consideration in decisions to lower interest rates over the past eight months.”
  • “One thing we should not do, in my judgment, is to try to engineer a return to the [pre-2008] boom. Many people say that we need more ‘confidence’ in the economy among both households and businesses. We do, but it has to be the right sort of confidence.”
  • The central bank shouldn’t neglect retirees and others who live on income from their savings. Popular discussion of interest rates routinely ignores this element, focusing almost exclusively on the minority of the population -- just over one-third -- who occupy a dwelling they have mortgaged.” 

We continue to believe that policy drives currencies. Moreover, we continue to view a sustained breakout in the USD as the most asymmetric and contrarian outcome facing global financial markets over the long-term TAIL – an event that becomes increasingly probable if the currency market believes that US monetary and fiscal policy will become sustainably more hawkish on the margin.

 

As Keith penned in his Early Look yesterday, the US Federal Reserve has overseen the buildup and rapid unwind of three massive bubbles over the past ~15yrs (tech, housing, and commodities). What if US monetary and fiscal policy becomes more about avoiding bubbles (for the sake of sustainable growth), rather than trying to engineer a return to their peaks?

 

In light of that question, here are a few more key questions for you to ponder over the long-term: 

  • Central banks and sovereign wealth funds have been diversifying away from dollars for a reason (namely its value has been forced lower by US policymakers for 10+ years)? What happens when dovish US policy or policymakers is/are replaced?
  • What happens if said actors increasingly believe that the EUR and the JPY are less credible stores of long-term value?
  • In the event of a TAIL-duration Strong Dollar trend, what becomes of the natural resource and CapEx fueled growth booms across the emerging market space from both a economic and capital markets perspective? EM stocks/bonds/FX are all asset classes with heightened risk in this scenario (think: Asian Financial Crisis, Russian and Argentinean sovereign defaults, etc.). 

Net-net-net, we’d be lying if we said we knew exactly how the next 3+ years of investing was going to play out. At a bare minimum, however, investors should be pondering these types of off-the-radar questions and perhaps buying inexpensive L/T insurance when and where they can find it.

 

Have a great weekend,

 

Darius Dale

Senior Analyst

 

TWO SCHOOLS OF THOUGHT PART II - 1

 

TWO SCHOOLS OF THOUGHT PART II - 2


THE M3: GENTING TAKES STAKE IN ECHO; SANDS BEIJING PAYMENT; PAGCOR

The Macau Metro Monitor, June 8, 2012

 

 

GENTING TAKES STAKE IN AUSTRALIA'S ECHO, SPARKS TAKEOVER TALK The Australian, Reuters

According to the Australian, Genting Singapore has taken a 4.9% stake in Echo.  Echo runs Sydney's Star casino and Jupiter's on the Gold Coast of Australia.  This raises the prospect of a battle for control over the $3 billion Australian casino company with billionaire rival James Packer.  Packer, who wants to use Echo's license to build a new casino complex in Sydney to attract more Asian high-rollers, has been agitating for change at Echo after building a 10% stake in the company.  Genting said the total value of its investment in publicly quoted securities was S$298 million (US$234 million).

 

Also, Echo's Chairman, John Story, has resigned, bowing to a destabilizing campaign run by Packer.  A full takeover would cost more than A$3 billion (US$2.96 billion) and both Packer and Genting would face tough regulatory scrutiny.

 

SANDS SOLICITED FOR PAYMENTS BY BEIJING OFFICIAL WSJ

Leonel Alves, an outside legal adviser to LVS with political connections in China and Macau, said in emails he was approached by “someone high ranking in Beijing” to pay $300 million to settle a lawsuit and win long-awaited approval to sell a luxury-apartment complex in Macau.  The Journal, which reviewed the emails from late 2009, reported that LVS, which was reeling from the financial crisis and under a mountain of debt, was looking for a way to sell a complex it valued at $1.4 billion but in an area only designated for casino and hotel projects.  That designation meant a sale would require government approval.

 

LVS said in a statement that “at no time has there ever been any suggestion that the company made any improper payments or received any improper benefits.”  Alves, responding to the Journal by text message, said any claims that he suggested bribing government officials were “totally untrue,” and that “nothing had happened.”

 

PAGCOR PRIVATIZATION TO BENEFIT MACAU: COMPANY OFFICIALS Macau Business

State-owned gaming company and regulator Philippine Amusement and Gaming Corporation, or Pagcor, is facing a proposal to be privatised.  But company officials say that would lead to a loss of competitive edge for the country’s gaming industry, which would instead benefit Macau, Singapore, and Malaysia.


A bill to privatize Pagcor and instead create a new body with only regulatory powers has been filed in the Philippine Senate by pro-administration Senator Ralph Recto.  The bill also proposes a significant tax hike – casinos would be obliged to pay 5% in gross revenue tax plus an additional 50% tax on aggregate gross earnings.  Pagcor officials say the company currently only charges from 2 to 15% on gross gaming revenue for non-high roller gamers; 15% on high rollers and junket tables; and 25% on slot machines.



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