Conference Call: Q3 Retail Themes

The HedgeyeRetail Team will be hosting a Q3 RETAIL THEMES call this Thursday. There are some critical themes evolving within Retail that should be the bedrock for idea generation in 3Q. The HedgeyeRetail team will explore them in depth with a conference call and Black Book on Thursday, July 12th at 11am EST.


Topics will include:


  • James Cash Rolling in Other People's Graves. We all know about the problems at JCP. After a year, that call is finally consensus. But what is not consensus is the impact that JCP will have on different competitors, suppliers, and 'partners' as its shop-in-shop build out program rolls out. 
  • Capital Intensity Intensifying. 'Invested Capital' is completely misunderstood in retail. It's not just capex, working capital, or sg&a. A company can tweak any of these factors at any point in time, and get much different outcomes. The reality is that we need to look at them in aggregate, for each company and the industry. The results are not pretty as it relates to industry returns. 
  • Who's Margin Dollar Is It Anyway. We're now in 2H, where raw materials costs are 'easy' vs. last year. But when most retailers say they're going to keep the savings, brands say they're going to keep it, and manufacturers staking their claim as well, it adds up to a number above 100%. We'll identify who wins and who loses. 


Please reach out or contact  if you would like to attend this conference and receive the materials.  

European Banking Monitor: The Tail That Wags the Dog

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

Key Takeaways:

* Last week we flagged the divergence between European bank swaps and European sovereign swaps as the former were moving higher while the latter tightened. Apparently the banks remain the tail wagging the dog in Europe, as this week European sovereign swaps are higher as uncertainty once again dominates headlines. This week there is less ambiguity. German, Italian and Spanish bank swaps were broadly wider last week while French bank swaps were mixed. This is consistent with what we saw in the sovereigns. 



 If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





European Financials CDS Monitor UK, Spanish, Italian French and German banks saw swaps widen last week. Greek banks tightened.


Overall, 21 of the 39 European financial reference entities we track saw spreads widened last week. The median widening was 0.33% and the mean widening was 1.03%. 


European Banking Monitor: The Tail That Wags the Dog - dd. banks


Euribor-OIS spread – The Euribor-OIS spread widened by 1 bps to 42 bps.The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: The Tail That Wags the Dog - dd. euribor


ECB Liquidity Recourse to the Deposit Facility – This index remains near its all time peak. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis. This chart shows data through Thursday. 


European Banking Monitor: The Tail That Wags the Dog - dd. ecb facility


Security Market Program – For the seventeenth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 7/6, to take the total program to €211.5 Billion.


European Banking Monitor: The Tail That Wags the Dog - dd. smp

Obama: Arbiter of the Market

Last summer, Obama’s approval rating on InTrade shot upward from June into about early July. After that, his approval rating fell, caught a slight bounce, and then continued downward. It has yet to recover to 2011 levels.



Obama: Arbiter of the Market - OBAMA SPX



Now that we’ve entered July once again, the same pattern has shown itself. And right now we’re in the middle of the bounce as is the S&P 500, which is highly correlated to Obama’s approval rating. The question remains: will the bounce continue upward into recovery or will it break and send Obama’s rating even lower?


It remains to be seen what will happen to the President, but we release our Hedgeye Election Indicator (HEI) every Tuesday. And according to the HEI, the President is just barely hanging on in this fight.


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Early July GGR projection of -2% to +6% YoY change



While a significant pick up from the prior week (maybe due to the typhoon), this past week’s average daily table revenues (ADTR) actually fell 1% from last year.  Our full month projection for July stands at HK$23-25 billion, representing YoY growth of -2% to +6%.  Remember that July had above normal hold last year and GGR was up 48% so the comp is very difficult.  VIP likely will be negative for the second straight month.  Early anecdotal evidence indicates that the Mass floors remain busy, however.




Market shares at this stage of the month are not very important since hold usually has an outsized impact on shorter durations.  The only takeaways are that MPEL had a great week, LVS is trending where we think they should be, and Galaxy likely got whacked on the tables.





The Macau Metro Monitor, July 9, 2012




According to Taiwanese media, 57% citizens of Matsu opted for a casino during a referendum, which could result in a casino in Taiwan in 3-5 years.  Matsu is home to 8,000 people and is a 30-minute ferry ride from Fujian province.  After the vote was held, the Executive Yuan asked two of its ministers-without-portfolio — Luo Ying-shueh and Yang Chiu-hsing — to lead the task force of drafting the Casino Establishment Act and selecting the regulatory agency that gives oversight of casino operations.  According to media reports, the Executive Yuan sees the Ministry of the Interior (MOI) as the ideal regulator.  MOI chief Lee Hung-yuan said he does not oppose his ministry being the regulatory agency.  Yet he said currently, neither the Lienchiang County Government nor the National Police Agency under the MOI are familiar with casino operations. “Right now, there's no manpower at the MOI to handle this.” Further regulations on gambling still need to be approved by the central government.


Lee also said there are four insufficiencies-transportation, water, energy, land-that still needs to be addressed.  Weidner Resorts Taiwan, a company run by former LVS executive Bill Weidner, has unveiled plans to build a casino resort that includes luxury hotels, professional sports venues and convention halls.



"On average, repayment period is around 15 days. Now some gamblers are asking for 2-3 days longer. Only if it is a very special situation will we consider it," said Kenny Leong, CEO of AERL.  One casino executive said junkets had already cut back on credit extension.  "Junkets have stopped extending as much credit but could a situation like AMAX happen again? For sure," said the executive, who declined to be named due to the sensitive nature of the issue.

Who Knows?

This note was originally published at 8am on June 25, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Who knows, maybe they are much better off the way they are.”

-Mitchell Zuckoff


That’s a quote that I underlined this weekend in an unbelievably true WWII story of disaster, discovery, and survival – Lost In Shangri-La, by a professor of Journalism at Boston University, Mitchell Zuckoff.


Since last Thursday I’ve been lost in my own cash position. It’s weird, people keep asking me when and where I am going to put some cash to work. Who Knows? I’m in no hurry. All I can tell you is that I am getting longer of books, in US Dollars.


If you can tell me, precisely, how this all ends (other than not well), I’ll have to risk manage the timing of your view. These markets are as volatile and reactionary as the central planners who are attempting to “smooth” them.


Back to The Global Macro Grind


I have no idea what risk management moves I am going to make each and every day. I wake-up in the morning, put one shoe on at a time, then grind through the process. Embracing the uncertainty of what Mr. Market is going to signal is what I do.


Last week’s uncertainty was solely concentrated on 1 central planning event – Ben Bernanke’s presser. After he didn’t deliver the drugs, the Dollar went straight back up – and everything big beta priced in US Dollars went straight back down.


Here’s how that looked week-over-week:

  1. US Dollar Index = +0.77% (up for the 1st week in 3)
  2. SP500 = down -0.5% (down for the 1st week in 3)
  3. CRB Commodities Index = down -1.8%
  4. WTIC Oil = down -5.2% (crashing, down -27% since February)
  5. Gold = down -3.9% (testing down for 2012 YTD)
  6. Russian stocks (RTSI) = -5.1%

Russian stocks? Yep. Russian stocks have been crashing alongside the price of The Petro since March. That’s why we call Russia a Petro-Dollar tape. Get the Petro and the Dollar right, and you’ll get Russian stocks right.


Whatever happened to the bull case for “de-coupling”? Is Oil going down because of the Dollar or Demand? They’ve changed their bullish thesis so many times already in 2012 that it’s getting hard to keep track.


Who Knows?


What I do know is that people who didn’t pay attention to the Correlation Risk in this market are Lost In Q2. Where do we go from here? Do we beg, print, and bail some more? Maybe doing more of the same will work this time? Maybe ‘this time is different.’


Right. And Ben Bernanke is going to bailout China this morning too.


Chinese stocks have been leading decliners for the last few weeks as Chinese #GrowthSlowing appears to be accelerating on the downside. Last night the Shanghai Composite Index was down another -1.6%. It’s been down -9.2% since the beginning of May.


At the beginning of May, there was plenty of opportunity to get out of stocks and commodities. But that’s not how consensus rolls. Instead, those addicted to the Qe drugs keep going back to the same old well of hope.


Look at last week’s CFTC Commodities speculation data (ahead of the Fed decision):

  1. Net long contracts on the Commodities basket were up +7% wk-over-wk to 628,540 contracts
  2. Agriculture bets ripped a +13% wk-over-wk move
  3. Gold saw a net long ramp of +5% wk-over-wk to the highest net long (notional) position since May 1st

Go back to May 1st and tell me how buying Gold around $1660 played out. Or go back to the beginning of last week, when these net long contracts perked back up, and tell me how not selling into the expectation of a Bernanke Bailout bounce to $1628 paid.


It’s all the same trade, over and over, and over again. With the difference being that this time Ben S. Bernanke’s Fed is out of bullets. Could he poke his head back into our lives in the coming days, weeks, or months? Who Knows. All I can do is proactively prepare for what I can see in front of me and, at the same time, have Mr. Market signal to me whatever else I might be missing.


In the US, I’m not missing this week’s Macro Catalyst Calendar:

  1. Monday: US New Home Sales “expected” to be a lofty 346,000 (an acceleration from April’s high, Who Knows?)
  2. Tuesday: US Consumer Confidence (June) “expected” to rise to 63.5 vs 61.9 in May? (Who Knows?)
  3. Wednesday: US Durable Goods (May) “expected” to rise +0.5% vs May (doubt that, but Who Knows?)
  4. Thursday: Will US GDP for Q1 be revised lower than 1.9%? Will Jobless Claims eclipse last week’s high for 2012?
  5. Friday: US PMI for June “expected” to be in-line with May’s 52.7, Who Knows?

All the while, of course, we’ll have the Eurocrats saving the world by piling more debt-upon-debt (EU Summit June 27-28th). Even though the German Parliament needs to ratify anything ESM after the EU Summit (June 29th); and even though the Italians are publically patronizing the Germans ahead of that vote; Who Knows?


All I know is that I don’t know until I know. And that’s why, for now, I’m largely in Cash.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, German DAX, and SP500 are now $1563-1591, $89.06-94.79, $81.95-82.62, $1.24-1.26, 6075-6235, and 1318-1335, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Who Knows? - ChartoftheDay


Who Knows? - vp 6 25

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