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MACAU TRACKING TOWARD 20% +

Table revenues for the first 10 days of November were solid with average daily up 20%+ over the comparable period of last year.  We won’t put too much emphasis on 10 days of data other than to say that we feel comfortable with our full month GGR projection of 17-22% YoY growth.  November should mark a slowdown from the blockbuster October growth of 32% but we believe that is well-known.  Maybe less known is the tough December comparison, which could drive December growth down to the low to mid-teens.

 

Market shares mean little at this stage of the month but for what it’s worth MGM and MPEL are off to a good start while LVS, Galaxy, and SJM shares are all below recent trend.

 

MACAU TRACKING TOWARD 20% + - m2

 

MACAU TRACKING TOWARD 20% + - m3


G-N-A-R-L-Y

Client Talking Points

US DOLLAR

The new public enemy #1 to the purchasing power of Americans (Janet Yellen) will be front and center in Washington this Thursday. Will she eliminate economic gravity expectations for the U.S. to ever taper? Ever? Will the foreign exchange market reverse all of last week’s US Dollar's gains? @Hedgeye TREND resistance for US Dollar Index is $81.29

EMERGING MARKETS

We brought back the pre-no-taper-decision band last week (Up Dollar + #RatesRising). Emerging Markets didn’t like that anymore than Gold did. The MSCI Emerging Markets down -1.7% and MSCI Latin America down -2.8% on the week with the Dow hitting another all-time high. This is getting gnarly again. Incidentally, the SPX risk range is 1748-1778 now.

GOLD

Gold was down -1.9% last week and down another -0.5% this morning. For almost a year now, my mean reversion target level for Gold has been $1271. So, I’m interested in buying back closer to that price with Janet Yellen being my catalyst on Thursday. The net long position (futures/options) in Gold dropped -13% last week. More to be revealed here.

Asset Allocation

CASH 62% US EQUITIES 6%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
DAX

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

What is the enemy of Gold? #StrongDollar + #RatesRising @KeithMcCullough

QUOTE OF THE DAY

The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults. -Alexis de Tocqueville 

STAT OF THE DAY

In the year 2000, there were only 17 million Americans on food stamps.  Today, there are more than 47 million Americans on food stamps.


What's New Today in Retail (11/11)

Takeaway: AMZN goes Postal. But it’ll never catch Alibaba. RH launches Contemporary Art. Gucci and GES drop the gloves. PVH SCC LVMH UA

COMPANY NEWS

 

AMZN - Amazon to Begin Sunday Deliveries, With Post Office's Help

(http://online.wsj.com/news/articles/SB10001424052702304868404579190091121691258)

 

  • "Amazon.com Inc. will begin delivering packages on Sundays in the nation's two largest cities later this month with...the United States Postal Service."
  • "Amazon said Sunday delivery will begin on Nov. 17 in Los Angeles and New York and expand next year to Dallas, New Orleans, Houston and Phoenix, among others. Amazon will bring packages from its warehouses to Postal Service locations on Saturday evening or Sunday morning. The agency will then deliver them to doorsteps."
  • "Sunday delivery will be available for all Amazon customers in markets where the program is available at no additional cost. Customers won't specify Sunday delivery; eligible items will show up on Sunday if that is when they are ready."

 

Takeaway: This is a win, win, win. Consumers win, for obvious reasons. Amazon wins, as it can advertise Sunday delivery for the first time ever, and does so on the cheap by taking advantage of the USPS when it's on the ropes. And the Post Office wins, because this is a cash flow stream -- albeit a minor one -- that helps prolong its inevitable demise. 

 

Alibaba - Alibaba Breaks Sales Record on China Singles Day Amid Discounts

(http://www.bloomberg.com/news/2013-11-11/alibaba-breaks-sales-record-on-china-singles-day-amid-discounts.html)

 

  • "Alibaba Group Holding Ltd. said transactions on its websites today surpassed last year’s single-day sales of 19.1 billion yuan ($3.1 billion) as discounts fueled demand on China’s biggest online shopping day."
  • "Taobao and Tmall, Alibaba’s two main platforms, broke last year’s sales in the first 13 hours of the 24-hour period…"
  • "Tmall’s vendors, starting midnight, began cutting prices by 50 percent or more on selected products from 20,000 Chinese and international merchants, including GAP Inc. and Steven Madden Ltd…"

 

Takeaway: Alibaba is like Amazon on steroids. Not only is it bigger and more profitable, but it also does a much better job of branding high-end product. Even brands like Ralph Lauren are considering going with Alibaba in China instead of opening up their own site.

 

RH - RH (Restoration Hardware) Announces the Launch of RH Contemporary Art

(http://online.wsj.com/article/PR-CO-20131108-908720.html?mod=WSJ_qtpressrel_pressrel)

 

  • "RH Contemporary Art...announces the opening of its first art gallery, located within a six-floor, 28,000-square-foot building at 437 West 16th Street in New York City's Chelsea art district. The gallery encompasses recently renovated spaces devoted to exhibitions and programming."
  • "Along with the premiere gallery space opening in Chelsea, RH Contemporary Art will include an online gallery featuring original content and a series of artist documentaries produced by RH Contemporary Art, as well as an art journal, which will be written by a roster of acclaimed curators, critics and artists. RH Contemporary Art plans to open a second RH Contemporary Art gallery space in Los Angeles in 2014."

 

Takeaway: Not a revenue event for RH, but more of a brand builder. The company is channeling the $35mm that they are saving (had been wasting) from the Fall sourcebook into things like Art and Music -- things that they are getting flack about from investors. But in the end, we estimate that they're only spending in the neighborhood of $10mm on these initiatives.

 

UA - Threat to Under Armour Headquarters Called Hoax

(http://online.wsj.com/news/articles/SB10001424052702304644104579190503763812172)

 

  • "Baltimore police gave the all-clear at Under Armour Inc.'s headquarters late Sunday after an apparent hoax led to a lockdown for several hours."
  • "Police SWAT teams spent more than four hours combing Under Armour's 530,000-square-foot headquarters in the Locust Point section of Baltimore after receiving a phone call Sunday afternoon with an unspecified threat to the building."
  • "News reports speculated earlier Sunday that there might be an armed gunman at the headquarters. Lt. Kowalczyk said that was never the case."
  • "Under Armour spokeswoman Diane Pelkey said in an email that the company has received clearance to re-enter its premises."

 

KER, GES - Guccio Gucci SpA Wins Trademark Case in China

(http://www.wwd.com/fashion-news/fashion-scoops/china-win-7271186?module=hp-topstories)

 

  • "The Nanjing Intermediate People’s Court of China sided with ...Gucci SpA...Wednesday in a dispute with Guess over trademark infringement and unfair competition activities in China. Gucci claimed that Guess and affiliates were imitating its collections and image, to the detriment of the Italian luxury brand."
  • "This is the second international jurisdiction in which Gucci has won a lawsuit against Guess, following the June 2012 ruling of a U.S. court that awarded Gucci $4.7 million in damages. Other verdicts are pending in Italy and France; in June, Gucci appealed a Milan ruling that Guess’s Quattro G-diamond pattern was unrelated to Gucci’s interlocking double-G pattern."

 

Takeaway: In the world of copyright infringement, it's so rare for two major brands to go head to head (actually, Nike and Adidas do it all the time -- but aside from them, it's rare).

 

PVH - PVH Licenses IZOD and Van Heusen Brands to BH in the Philippines

(http://apparel.edgl.com/news/PVH-Licenses-IZOD-and-Van-Heusen-Brands-to-BH-in-the-Philippines89338)

 

  • "PVH Corp. and BH Fashion Retailers Inc. have entered into license agreements under which BH Fashion Retailers will market and distribute certain apparel and accessories for the IZOD and Van Heusen brands in the Philippines. The initial term of the license agreement runs through December 2018."
  • "Under the license agreement for PVH’s IZOD brand, BH Fashion Retailers will market and distribute sportswear, golfwear, dress shirts, neckwear, outerwear, swimwear and certain accessories. Under the license agreement for Van Heusen, BH Fashion Retailers will market and distribute sportswear, outerwear, dress furnishings and accessories. BH Fashion Retailers is planning to open free standing IZOD and Van Heusen stores, as well as developing shop-in-shops at better department stores throughout the Philippines."

 

SCC - Sears Canada Announces Sale of Certain Joint Ventures

(http://phx.corporate-ir.net/phoenix.zhtml?c=117881&p=irol-newsArticle&ID=1874638&highlight=)

 

  • "Sears Canada Inc. announced that it has reached a definitive agreement with Montez Income Properties Corporation to sell its 50% joint venture interest in eight properties it owns with The Westcliff Group of Companies for approximately $315 million."
  • "The transaction is scheduled to close on January 8, 2014. The properties involved are comprised of four regional shopping centres, two strip centres and two open-format retail centres. Westcliff will continue as 50% owner and exclusive manager of the properties."
  • "Sears stores that are currently situated on these properties will remain in operation; there will be no impact on customers or associates in these stores as a result of this transaction."

 

Takeaway: Anything Sears-related continues to be front and center for monetization.

 

LVMH - Louis Vuitton Opens a 'Townhouse' at Selfridges

(http://www.wwd.com/retail-news/department-stores/vuitton-opens-a-townhouse-at-selfridges-7270684?module=hp-topstories)

 

  • Louis Vuitton has opened a new store in London, the "10,000-square-foot, three-story shop-in-shop known as the Townhouse that features a revolving glass elevator inside a double helix, and an interactive 'digital atelier' — has opened at Selfridges."
  • "For the first time at Selfridges, Louis Vuitton has united all of its collections under one roof, including the collections by men’s style director Kim Jones, which had not been carried at the London department store until now. The new Vuitton store has its own entrance, next door to the main Selfridges one on Oxford Street."

 

What's New Today in Retail (11/11) - chart1 11 11

 

INDUSTRY NEWS

 

Q3 E-comm Sales Up 13 Percent YoY

(http://apparel.edgl.com/news/Q3-E-comm-Sales-Up-13-Percent-YoY89339)

 

  • "comScore, Inc. released its estimates of Q3 2013 U.S. desktop-based retail e-commerce sales. Q3 2013 sales grew 13 percent year-over-year to $47.5 billion…"
  • "M-commerce spending on smartphones and tablets added $5.8 billion for the quarter, up 26 percent vs. year ago, for a total digital commerce spending total of $53.2 billion in the third quarter."
  • "The top-performing online product categories were: Digital Content & Subscriptions, Apparel & Accessories, Consumer Packaged Goods, Consumer Electronics and Jewelry & Watches. Each category grew at least 14 percent vs. year ago."
  • "E-commerce accounted for 9.4 percent of consumers' discretionary spending, the highest third quarter share on record."
  • "Of the additional $5.8 billion in mobile commerce (m-commerce), purchasing using smartphones accounted for 62 percent vs. 38 percent from tablets."

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

November 11, 2013

November 11, 2013 - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

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The Policy Urge

“They had no heads. The frenzy was all they had… the urge, and the urge was all they felt.”

-Tom Wolfe (Back To Blood)

 

In between my son Jack’s hockey practice and his 6th birthday bender, I’d like to say that it surprised me this weekend when I glanced at the cover of The Economist’s headline: “The Perils of Falling Inflation.” But, sadly, it did not. PhD Keynesian Economists are officially the world economy’s greatest threat.

 

The urge for policy makers to do something has reached a tipping point. Un-elected and un-checked, Janet Yellen’s Federal Reserve is likely to embrace this unprecedented Policy To Inflate that the Europeans (ex-UK) have just reiterated via an ECB rate cut. Incrementally easing monetary policy into an economic acceleration of +2.84% US GDP, that is.

 

The Economist’s sub-title makes the media as complicit as Nero (The Emperor “who fiddled while Rome Burned” -Wikipedia): “In both America and Europe central bankers should be pushing prices upwards.” I couldn’t make this up if I tried. After Deflating The Inflation (from the 2011-2012 all-time global inflation highs), these people want the all-time highs in food and Oil prices again!

 

Back to the Global Macro Grind

 

Deflating The Inflation is not DEFLATION. That’s one of the many buzz words regressive economists use to fear-monger you into believing you should allow them to A) devalue your hard earned currency and B) earn 0% on your savings, forever.

 

In the 1980s/1990s, we had < $20 Oil. I might call that “deflation”, but Brent Oil at $105? And if the 2 best post WWII US Growth periods (1983-89 and 1) were reflexive #StrongDollar “deflation” periods, what’s the problem with deflation again?

 

A study we highlighted in our Q313 Macro Themes deck by Atkeson and Kehoe spanning a period of 180 years (17 countries)  found 0% relationship between deflation and depressions. There were actually more depressions during periods of inflation than deflation. That won’t shock anyone who lives in the real world.

 

In other news, look at what happened in macro markets last week:

  1. Dollar Up (+0.6% US Dollar Index)
  2. Rates Up (+13bps to 2.75% on the UST 10yr)

#cool

 

That’s what I want. That’s not what my Federal Reserve loving Keynesian types (Zervos and Hatzius) want. Neither do guys and gals who are in the business of being levered long Gold, Bonds, or anything Equities that looks like a bond.

 

Again, with a stronger Dollar + #RatesRising, look at what else you got last week:

  1. Gold down another -1.9% to -23.6% YTD #crashing
  2. REITs and MLPs -4.1% and -1.9, respectively, lagging the Financials (XLF) +1.2%, big time
  3. Emerging Markets (MSCI EM) -1.7% and MSCI LATAM Index -2.8% (to -12.9% YTD)

No, this is not what all of #YieldChasing investor styles want. They want what Bernanke and Yellen taught the Japanese and Europeans to want – a “risk-free” rate of 0% that punishes savers and forces Mom & Pop to buy into the slow-growth Gold Bond Bubble thing under the cowardly veil of a “deflation” threat.

 

In markets, eventually tends to happen quickly. Eventually, the mother of all “deflations” will be in the price of overvalued, over-stimulated, and over-owned debt that policy makers are urging investors to buy into. To a large extent, that’s been our call for the better part of 2013 – that a stronger US Dollar + #RatesRising would prick the Bernanke Gold Bond Bubbles.

 

So how is Janet Yellen going to reflate Gold, Bonds, MBS, REITS, etc. if:

 

A)     Economic gravity doesn’t cooperate with her (more GDP of 2.84% and US monthly employment report beats?)

B)      Fund Flows continue to front-run her?

 

Solving for A) is already in motion. She’ll do what every central planners going back to Nero did and change the rules. She’ll make up a new unemployment target of 5.5-6% and she’ll cry wolf about “deflation” when it’s Deflating The Inflation that gave the USA growth surprises on the upside to begin with!

 

As for B), Bernanke and Yellen have been highly ineffective in convincing the buy-side that this ends well. Looking at last week’s ICI Fund Flow data, the flows continue out of Fixed Income and into Equities:

  1. Equities: after a record weekly inflow in the wk prior, US equity fund flows were up another +$7.9B w/w
  2. Fixed Income: another -$4.1B in outflow last wk following -$2.3B in the wk prior

All the while, the US IPO market is partying like 1999 with 192 IPOs ($51.8B) for 2013 YTD!

 

The urge to surge! It’s all about the urge to inflate asset prices, baby! These people have no heads. This is a bubble frenzy. To bubble up, or not bubble up (every prior asset bubble the Fed has perpetuated), remains Mr. Market’s question.

 

Our immediate-term Risk Ranges are now:

 

UST 10yr Yield 2.64-2.77%

SPX 1

VIX 12.52-14.19

USD 80.35-81.51

Pound 1.59-1.61

Gold 1

 

My heartfelt thank you goes out to all the service men, women, and veterans around the world who have watched over us while we sleep,

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Policy Urge - Chart of the Day

 

The Policy Urge - Virtual Portfolio


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