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Crown's City of Dreams (COD) will open on June 1st.  Unlike its sister property Altira, formerly Crown Casino, COD will focus on the Mass Market (MM) segment.  Over 90% of COD's table games will be dedicated to MM. 




So who are the other big MM players?  Here's the breakdown of the Macau operators and their exposure to MM:


COD MAY CAUSE SOME MASS(IVE) PAIN - macau mm as   of rev


On the surface, SJM and LVS are most at risk of losing share from the opening of COD given their MM exposure.  However, COD is situated on the Cotai Strip, across from The Venetian and Four Seasons.  Cotai traffic will increase dramatically and cross visitation to the LVS properties should offset some of the capacity increase.  I'm less enthused about the peninsula properties of SJM, MGM, and Wynn.   The higher end Mass customer at Wynn Macau in particular seems to be a target of COD.


Over the intermediate term, however, the outlook is more positive.  Macau remains possibly the only market with excess demand.  Despite the visa restrictions, MM has been holding its own on a YoY basis.  We adhere to the school of thought that Beijing will loosen the restrictions later this year to provide a tailwind to the new Macau Chief Executive. 


The COD ramp will be interesting to watch.  I expect COD to do quite well in the Mass Market business from the start.  However, analysts consistently overestimate start up margins.  Moreover, COD's strategy to market directly to VIP's, circumventing the high cost junket structure, is logical but also obvious.  If it was so easy to do why hasn't anyone else (Wynn?) mastered the strategy.  If they can figure it out God bless them.  The property would be a home run.  


The Las Vegas Sun reported that some CityCenter condo buyers are trying to renegotiate their purchase contracts to better reflect market conditions.  Market conditions could suggest prices almost 50% below what the buyers had already agreed to.  We know of some in the gaming investment community (buyside and sellside) that are probably in this camp.


A little macro analysis might have persuaded the buyers to wait and not buy at the peak.  A little more macro analysis back in the spring of 2008 would've persuaded gaming analysts to downgrade gaming as housing prices had already been falling. 


We've been critical of investors and especially sell side analysts that "don't do macro".  It has shown in their work over the last year and it looks like it may be adversely affecting their personal investments as well. 


Its 7am PST and the CKE Air force in route to Palm Springs on the Friday before Memorial Day weekend.

I would bet money the CEO is not paying the $10,000 is cost to fly from Santa Barbra to Palm Springs!


CKR – HOW NICE   - ckrflight


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 80.46%
  • SHORT SIGNALS 78.35%

HIBB: Real Estate Call Out

"...We feel with a lot of small landlords, and we and they are experiencing a lot of uncertainty. Many new store deals are falling out because of lack of money on the landlord side and small landlords are having a great difficulty getting bank financing.


When the retail environment improves we will grow our store base at a faster rate. "

Success Is No Accident

"Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do."
It's great to be able to speak your mind!  When you speak your mind writing research, it's like working in a fish bowl - there is no escape and you are accountable for everything you say. 
I have been writing research my entire professional career and I have learned to take the good with the bad.  I like to take calculated risks; I'm not always right and being wrong when working in a fish bowl can be very painful.  However, the reward for knowing that you have helped someone else be successful is amazing.
It was a calculated risk to go to work for a start up, independent research firm in the midst of a financial crisis not seen in generations.  A year later we continue to take significant market share from broken business models.  The employees at Research Edge have one thing in common - we are students of the markets and love getting stocks right!  
Growing up I was a soccer player; a sport which most people think is boring.  The sport of soccer is actually a thinking man's game.  The best soccer players in the world are nimble and know where the ball is going to be before it gets there.  The same is true for the market and individual stocks; know where they are going before they get there and you win!  Play the game that is in front of you and you will be one step ahead of the competition. 
Keith McCullough had never worked in a research fishbowl until he started Research Edge and we all are painfully aware that he did not play soccer! But over the past six months he has definitely been nimble and has known where the ball was going! 
For 2009, the entire set up was prefaced on his "Breaking the Buck" macro call and for a generational short squeeze in most global equity markets.  I don't think there is another MACRO strategist on the street that made that call!  If there is, please let me know because I would like to tell him he should have been a soccer player too!

It is painful to watch those in charge of the country "react" to the buck breaking!  After the market starts to melt down on concerns about our AAA credit rating and the mighty dollar crashing, Treasury Secretary Timothy Geithner goes on Bloomberg TV and says "It's very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term."  His target is to reduce the gap to 3% of GDP from around 13% this year.  Who is he kidding?
I know this is Obama speak, but let's be realistic.  In the age of TRILLION dollar bail outs, the budget deficit is going up, not down.  One thing you can be sure of is "the medium term" will not be during his tenure as treasury secretary and potentially not during Obama's term as president.
As we have said all year, the most dominant macro factor at work has been the US Dollar down and stocks up.  For three straight days, it's been dollar down, stocks down; the dollar crashing is now a bad thing! 
The Safety trade and reflation are the only two themes that still have legs in this market.  The early cycle Consumer Discretionary and Technology name are breaking down, as we now only have 5 of the 9 sectors positive on both the durations of TREND and TRADE. 
While our Macro team has been on fire this year, the research team continues to score big too.  Today we are waking up to KeyBanc upgrading Autodesk (ADSK) from Underweight to Hold after the company reported better than expected numbers.  ADSK has been in the virtual portfolio since 3/23 and looking to provide 50% return in just two months!  Well done Rebecca! It's great to be on a real team again. Success is no accident.
Function in Disaster, finish in style
Howard Penney        
Managing Director



EWA - iShares Australia-EWA has a nice dividend yieldof 7.54% on the trailing 12-months. With interest rates at 3.00% (further room to stimulate) and a $26.5BN stimulus package in place, plus a commodity based economy with proximity to China's H1 reacceleration, there are a lot of ways to win being long Australia.


XLE - SPDR Energy- We bought Energy on 5/13 with the dollar up. We think it works higher if the Buck breaks down.  Bullish TRADE and TREND remain.

CAF - Morgan Stanley China Fund- A close end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package.  To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

EWD - iShares Sweden-We bought Sweden on 5/11 with the etf down on the day and as a hedge against our Swiss short position. From a fundamental setup, we're bullish on Sweden. The country issued a large stimulus package to combat its economic downturn and the central bank has effectively used interest rate cuts to manage its economy. Sweden's sovereign debt holds a strong AAA rating despite Swedish banks being primary lenders to the Baltic states. We expect Sweden to benefit from export demand as global economies heat up.

XLV - SPDR Healthcare-Healthcare looks positive from a TRADE and TREND duration. We've been on the sidelines for the last few months, but bought XLV on a down day on 5/11 to get long the safety trade. 
TIP- iShares TIPS -The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%.  We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

GLD - SPDR GOLD -We bought more gold on 5/5. The inflation protection is what we're long here looking ahead 6-9 months. In the intermediate term, we like the safety trade too.  



EWJ - iShares Japan -We re-shorted the Japanese equity market via EWJ on 5/20. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands. 
UUP - U.S. Dollar Index -We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the greenback. The Euro is up versus the USD at $1.3962, a four-month low for the Dollar. The USD is down versus the Yen at 94.1150 and down versus the Pound at $1.5848 as of 6am today.
EWW - iShares Mexico- We're short Mexico due in part to the repercussions of the media's manic Swine flu fear.  The country's dependence on export revenues is decidedly bearish due to volatility of crude prices and when considering that the country's main oil producer, PEMEX, has substantial debt to pay down and its production capacity has declined since 2004. Additionally, the potential geo-political risks associated with the burgeoning power of regional drug lords signals that the country's economy is under serious duress.
IFN -The India Fund-We have had a consistently negative bias on Indian equities since we launched the firm early last year. Despite recent election results likely proving to be a positive catalyst, long-term we believe the growth story of "Chindia" is dead. We contest that the Indian population, grappling with rampant poverty, a class divide, and poor health and education services, will not be able to sustain internal consumption levels sufficient to meet targeted growth level. Other negative trends we've followed include: the reversal of foreign investment, the decrease in equity issuance, and a massive national deficit.

LQD  - iShares Corporate Bonds-Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates in the back half of 2009 that bonds will give some of that move back. Moody's estimates US corporate bond default rates to climb to 15.1% in 2009, up from a previous 2009 estimate of 10.4%.  


EWL - iShares Switzerland - We believe the country offers a good opportunity to get in on the short side of Western Europe, and in particular European financials.  Switzerland has nearly run out of room to cut its interest rate and due to the country's reliance on the financial sector is in a favorable trading range. Increasingly Swiss banks are being forced by governments to reveal their customers, thereby reducing the incentive of Switzerland as a tax-free haven.

MW: Activism Brewing?

It seems to have slipped under many radars that Men's Wearhouse just added a change in control provision for its top five officers.  The language was strong enough for our affiliate Michelle Leder (footnoted.org) to flag for us, and her track record in spotting these outliers is notable. In addition, the short interest is high at 15% of the float, and the stock looks bullish from a TREND perspective on Keith's models. While we can make a pretty convincing case that the 10%+ margins of yesteryear are a pipedream for MW as unit growth, offshoring and department store destocking themes have largely played out, this is the sort of sleepy name at a trough point in the cycle where activism would not come as a surprise.



What prompted Mens Wearhouse to suddenly add change in control agreements with its five named executive officers on May 15? The company disclosed the new agreements in both the proxy and a separate 8K filed late Wednesday.


We can think of only two likely scenarios here: another company may be looking to acquire Mens Wearhouse or a large investor - think Pershing Square's Bill Ackman and his run on Target here -- might be contemplating a challenge to the company's board. Option A seems a bit more likely, not least of all because if there is an Ackman-like person out there, they've yet to surface.


What makes the filing really stand out is that Mens Wearhouse isn't a new company and change in control agreements tend to be pretty standard things. George Zimmer, for example, started the company over 35 years ago and none of the other top executives are new hires. Given that, why would the company suddenly enter into these agreements on May 15?


After a quick skim comparing the 2008 proxy to the one filed on Wednesday and throwing the 8K also filed on Wednesday into the mix, it seems pretty clear that something is going on here that's worth paying attention to.




  • Revenue is highly tied to low-fashion "business attire", of which tailored clothing accounts for 55% of core revenues.  This is a company whose core sales have been weakened almost step for step with the overall economy. 


  • With very little fashion risk in the assortment, revenues here to do not spike in good times.  However, they do see disproportional downside when unemployment is at historical highs.  A suit is the last thing the average male "wants" to buy.


  • Historically the business was successful as they took share from traditional tailored suit distribution channels (i.e department stores exiting the low turning, service intensive business).


  • As the top-line grow, margins expanded as well.  The company benefited greatly over the past few years from greater imports and direct sourcing shifting to Asia.  Remember that the tailored business was still being done domestically, but with also a fairly large Canadian and Mexican manufacturing base.


  • Additionally, the acquisition of the free-standing tuxedo business in April 2007 has provided a positive benefit to margins.  Gross margins for the tux rental business are 82% vs. core gross margins of 55-57%.  As the tux business continues to grow (expected to be up MSD 1H09) at the faster rate than the base (which is now barely growing with store growth cut to 10 stores, from 40-50 per year), there is a positive mix benefit here.


  • Offsetting the tuxedo business is a recent decision to aggressively promote the suit business through BOGO (Buy One Get One) offers.  This is a new strategy that began in 4Q08 and is expected to continue throughout '09 at the very least.  This is a departure from the company's historical EDLP strategy, and is one that will produce gross margin pressure at the very least through 2009.  This is one of the top factors as to why it may be unrealistic to see margins expand again in the near term.  Of course they can cancel this marketing program, but we know from the shoe business how long it takes to wean the consumer off of BOGO's.


  • Also as it relates to BOGO, if you don't need a suit because you're not employed, then you certainly don't need two!


  • In looking at the CEO Zimmer's health, he did have a surgical procedure in 2005 related to an infected abdominal aortic graft.  Since then however, there have been no public announcements related to his health.


  • Bottom line, the boom growth years appear to be over from a store opening/market share perspective.  As the economy recovers, men will resume suit purchases.  However, the duration of the recovery remains to be seen and it certainly won't occur over night. 

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