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OLYMPICS: Retail In The Mix

The2012 Olympics have been nothing but trouble for everyone involved. From the city of London’s transit issues to Michael Phelps’ inability to perform to NBC’s broadcasting problems, it’s been a disaster from the get go. The same goes for retail sales in London with respect to Olympics gear and apparel.

 

Manufacturers are doing well –names like Nike (NKE), Ralph Lauren (RL), Adidas (ADS) and Under Armour (UA). Other brands like COH, GES, and ANF are likely not faring as well. Below is a visual we did back in June analyzing NKE stock action relative to the broader market headed into and out of the Olympics.

 

OLYMPICS: Retail In The Mix - NKE olympicspread


CHART OF THE DAY: NASTY REAL-TIME GLOBAL GROWTH SIGNAL

CONCLUSION: We continue to flag the risk that Growth Slowing’s Slope is accelerating to the downside as prices of raw materials race higher alongside asset prices broadly amid heightening speculation on Fed/ECB Policies to Inflate.

 

In kicking off what will be a very busy week for global GROWTH/INFLATION/POLICY data, the Bank of [South] Korea’s AUG Business Conditions Survey left much to be desired on the growth front. The survey results, which are a 1MO-forward look at expectations for operating conditions, literally tanked: 

  • Manufacturing: 70 from 81; lowest reading since MAY ’09; steepest MoM decline since DEC ’08
  • Non-Manufacturing: 69 from 76; lowest reading since APR ’09; steepest MoM decline since NOV ‘08 

CHART OF THE DAY: NASTY REAL-TIME GLOBAL GROWTH SIGNAL - 1

 

While the absolute level of the indices are worrisome indeed (lowest readings since the thralls of the Great Recession), the sharp acceleration to the downside in the slopes of the lines is quite frightening indeed. And since the work of renowned behavioral psychologists such as Dr. Richard Peterson and Dr. Daniel Kahneman has taught us that short-term forecasts are typically not much more than an extrapolation of recent trends, these forward-looking AUG numbers may be a leading indicator for a messy week of Asian/Latin American JUL/2Q GROWTH data. We list the most noteworthy releases below (email us for the full list):

 

MON (tonight):

  • South Korea: JUL Industrial Production
  • Japan: JUL Manufacturing PMI; JUL Employment Report
  • Taiwan: 2Q GDP
  • Singapore: 2Q Unemployment Rate

TUES:

  • South Korea: JUL Trade Data
  • China: JUL Manufacturing PMI; JUL HSBC Manufacturing PMI
  • Indonesia: JUL Manufacturing PMI; JUL Consumer Confidence
  • Australia: JUL Manufacturing PMI
  • Taiwan: JUL Manufacturing PMI
  • Vietnam: JUL Manufacturing PMI

WED:

  • India: JUL Manufacturing PMI
  • Singapore: JUL Manufacturing PMI
  • Australia: 2Q Retail Sales
  • Brazil: JUL Manufacturing PMI; JUL Trade Data
  • Mexico: JUL Manufacturing PMI; JUL Services PMI

THURS:

  • China: JUL Services PMI; JUL HSBC Services PMI
  • Hong Kong: JUL Manufacturing PMI
  • Australia: JUL Services PMI
  • Thailand: JUL Consumer Confidence

FRI:

  • India: JUL Services PMI
  • Brazil: JUL Services PMI
  • Mexico: JUL Consumer Confidence

 

All told, we continue to flag the risk that Growth Slowing’s Slope is accelerating to the downside as prices of raw materials race higher alongside asset prices broadly amid heightening speculation on Fed/ECB Policies to Inflate. On the strength of said asset price inflation, South Korea’s benchmark KOSPI equity index, like many other equity indices globally, is bumping up against critical resistance levels as indicated in the chart below. Absent confirmation of a true quantitative breakout, we view this month-end hope rally as exactly that – hope.

 

CHART OF THE DAY: NASTY REAL-TIME GLOBAL GROWTH SIGNAL - 2

 

Best of luck out there this week.

 

Darius Dale

Senior Analyst


European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever”

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:

 

* ECB President Mario Draghi's announcement last week that "The ECB is ready to do whatever it takes to preserve the euro" triggered a broad-based rally in European bank equities and swaps. US Global banks followed suit. It's interesting to note, however, that Greek banks continued to widen out, suggesting that Greece leaving may not be part of Draghi's preservation plans.

 

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 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

 

(o)

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Security Market Program – For the twentieth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 7/27, to take the total program to €211.5 Billion. We believe that in this Thursday’s ECB interest rate meeting, Draghi will be forced to issue some sort of monetary or fiscal policy following his comments that he’ll do “whatever” it takes to support the currency. We think that could likely include a reengagement of the SMP. We see less probability of another LTRO and think that while a 25bp cut to the main interest rate could be likely, it will have very little lasting impact on the markets.  

 

European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever” - aaa. smp

 

European Financials CDS Monitor Spanish, German, French and Italian banks tightened.  Meanwhile, Greek banks widened. Overall, 28 of the 39 European financial reference entities we track saw spreads tighten last week.

 

European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever” - aaa. banks

 

Euribor-OIS spread – The Euribor-OIS spread widened by 1 bps to 36 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: Euro Banks Rally on Draghi’s “Whatever” - aaa. euribor

 

ECB Liquidity Recourse to the Deposit Facility – The sharp drop from three weeks earlier reflects the ECB's deposit rate change to 0.0%. Since that time, the index has been roughly flat.  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.  

 

European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever” - aaa. ecb liquid.


Early Look

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Moonshot: SP500 Levels, Refreshed

POSITIONS: Short Industrials (XLI)

 

Maybe I could have risk managed it better, maybe I couldn’t have. Everything becomes clearer in hindsight. The only thing I can continue to do is learn from my mistakes.

 

We didn’t make any mistakes on both how early and consistent we’ve been on #GrowthSlowing. That, I guess, is now the bull case. The faster GDP growth slows, the louder the #BailoutBull gets. So, you could have been bullish on growth then (Q1), and bailouts now (Q3) – bottom line is that perma bulls are always bullish, regardless of their mistakes.

 

Across our risk management durations, here are the lines that matter to me most: 

  1. Immediate-term TRADE resistance = 1392
  2. Intermediate-term TREND support = 1376
  3. Immediate-term TRADE support = 1363 

In other words, we can all pretend everything will end just fine, until 1376 snaps again. If it doesn’t, I guess we are going to suspend economic gravity and fly to the moon.

 

Just not sure how we get down once we get there,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Moonshot: SP500 Levels, Refreshed - SPX


MACAU TYPHOONED IN WEEK 4

 July GGR growth forecast of -2% to flat

 

 

Average daily table revenues (ADTR) dropped 16% YoY due primarily to the Typhoon that hit one week ago today.  Ferry service was out all day Monday and most of Tuesday.  This was the highest rated typhoon to hit Hong Kong/Macau in over 10 years.  With only 2 days left in the month, we are forecasting HK$23.0-23.5 billion in GGR (including slots) which would represent a decline of 2% to flat YoY. 

 

MACAU TYPHOONED IN WEEK 4 - macau3

 

LVS should cap its first successful month since the opening of SCC with market share over 21%, probably hold aided to some extent but still likely a significant improvement even on a hold-adjusted basis.  We would expect normalized share at 19-20% until the additional rooms/amenities open at SCC on September 20th when share should be consistently over 20%.  Wynn and MGM continue to lag trend, although MGM did show MTD improvement over last week.

 

MACAU TYPHOONED IN WEEK 4 - macau2



Bulls On Parade

RIA DAILY PLAYBOOK  

FOR RELEASE ON MONDAY, JULY 30, 2012

 

CLIENT TALKING POINTS

 

BULLISH BAILOUTS

US equities are currently enjoying a bull rally for one main reason: bailouts. As long as central planners around the world keep bailing out their respective countries, the trend will remain the same. Spain’s getting a blank check along with Greece and soon Spain will pay a visit to the bank known as the ECB to make a multi-billion euro withdrawal. Now we can sit back and wait to see if Ben Bernanke will deliver the drugs for the US in the form of QE3; we’re talking about a full on rate cut here, not another round of MBS buybacks.

 

KEEP THE GROWTH ALIVE

It was the Reverend Jesse Jackson who once said “Keep hope alive!” It appears that market participants and central planners are following in Jackson’s footsteps. It’s no secret that growth is slowing. Throw in asset price inflation, amplify market volatility and shorten economic cycles and you’ve got a delicious jambalaya called disaster and disappointment. We are perpetuating the inevitable consequences of bailouts, QE and all the other problems that remain.

 

But it’s all OK. As long as the S&P 500 rips five handles in the pre-market, no one is going to complain. It’s astonishing that people aren’t ready for lower fuel and food prices yet. King Dollar will make his way to the throne, but it may take him awhile before he gets there.      

 

GREAT INFLATIONS

Speaking of expectations, how about this inflation we’ve been experiencing? Sure, Isaac Newton once noted that “what goes up, must come down” but the commodity perma-bulls seem not to have a care in the world for that idiom. Should Bernanke deliver the goods, $1700 gold and $100+ a barrel oil will again become the “norm.” Oil is up +6% week over week and sugar is up +17% week over week.

 

If you don’t mind coughing up $12 for a Hershey’s bar, then so be it. Keith noted in this morning’s Early Look that CFTC contracts outstanding have passed the 1 million mark. An efficient market needs both hedgers and speculators but this is getting ridiculous. If commodity prices go any higher (and the drought in the Midwest continues to obliterate corn), perhaps we’ll soon see CASH 4 CORN stores popping up here and there.

 

ASSET ALLOCATION

 

Cash:  Flat              U.S. Equities: Down

 

Int'l Equities: Flat     Commodities: Flat

 

Fixed Income: Up     Int'l Currencies: Flat

 

TOP LONG IDEAS

 

JACK IN THE BOX (JACK)

This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

                                 

TRADE: LONG

TREND: LONG

TAIL: LONG            

 

FIFTH & PACIFIC COMPANIES (FNP)

The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

 

TRADE: LONG

TREND: LONG

TAIL: LONG

 

LIFEPOINT HOSPITALS (LPNT)

We continue to expect outpatient utilization to pick up in 2H12 alongside stabilization in acuity with ortho and cardiac/ICD volumes supporting both pricing and inpatient admissions growth. Births should serve as a tailwind into year-end, recent and prospective acquisitions offer some upside to 2012/13 numbers and the in place repo offers some earnings flexibility. With European and Asian growth slowing, we like targeted domestic revenue exposure as well.

 

TRADE: NEUTRAL

TREND: LONG

TAIL: LONG

 

THREE FOR THE ROAD

 

Tweet of the Day: “STREITER SAYS SHARED DEBT LIABILITY NOT IN GERMANY'S INTEREST” -@fiatcurrency

 

Quote of the Day: “The glory of great men should always be measured by the means they have used to acquire it.”              – Francois de La Rochefoucauld

 

Stat of the Day: $700 million. The total amount of fines levied by the US due to the company’s failure to squash money-laundering at the bank.


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