The new Macau chief executive seems to be an ideal executive from Beijing’s perspective.  While Beijing is pleased, the Macau public doubts his impartiality.  Dr. Chui is from on of Macau’s few ruling clans in a region where rule of law can often be trumped by power and connections. 

Dr. Chui has yet to convince the public that he can avoid conflicts of interest arising from his business and family background.  The Chui family has widespread business interests in Macau, covering properties, construction, tourism and commodities.  Chui has tried to assure the public that his family background will not affect his impartiality. 

For more detail on the Chui family’s business influences, read this article published late last week in the South China Morning Post.


Macau’s new leader says that “the Motherland” will provide powerful backing to the gaming hub of Macau.  There are expectations that the new chief executive will bring about a smoother relationship with the central government.  In light of the visitation numbers revealing an 11% year on year decline in visitation, many in Macau will be hoping for a loosening of visa restrictions under the new chief.


Destination Macau lays out the race to file IPOs between perpetual rivals Steve Wynn and Sheldon Adelson.  DM believes that a Wynn listing is a high probability in the fourth quarter of this year and would be well received by the market. They question why Sheldon leaked his intention to file the IPO application "early next month" just hours before getting on his plane to Beijing, where he has spent the past week. The article speculates that Sheldon went to China to look at his "other options" for the financial rescue of his debt-laden, cashflow-rich, Macau casinos, such as a direct purchase of equity in Venetian Macau Limited that negates the need for an IPO. 

Amongst Adelson’s appeal to Beijing is a long list which includes a very influential partner in Lot 3, David Chu of the Far Eastern Group, who has an interest in seeing the Cotai Strip become a reality. The Macau and Chinese governments would also like to see construction on Lot 5 & 6 resumed and the tens of thousands of jobs created as a result. Finally, having a Chinese equity partner would make Adelson's ambitions both more manageable and more realistic in Macau.  More news on the topic is sure to be discussed on LVS’s earnings call next Thursday.  The article also speculates that results will be “strong.”


Apparently City of Dreams has had a reversal of luck in the first 22 days of July.  The hold rate is speculated to be close to 5% on rolling-chip turnover, mass volumes are said to be up about 25 per cent, as well. The better performance at CoD is not seemingly at the expense of Altira, which is said to be doing better in July.  If the streak continues, Melco is on track to take an 18.4% share, putting them in third place, behind SJM (23%) and LVS (19.6%), and well ahead of Wynn (13.4%).

The most astonishing result from the preliminary numbers, however, comes not from the Lawrence’s results but from his sister, the Pansy Ho. This source claims that MGM Grand, has made more money than Wynn so far and taken a 14.8% market share as a result of the power of direct high-rollers.

Apparently the news is not so bright for Galaxy.  Despite having a record month for turnover, the group's win-hold percentage was a negative 2%. So some very happy people have gone home this month with lots of the Lui family's money in their pockets, leaving Galaxy with just 10.8% of market share in revenues.


As was previously published, the Macau International Airport saw throughput of passengers (down 24%) and cargo (down 64%) plunge in the first half of this year, hit by the double whammy of the global economy and the initiation of direct flights between Taiwan and the mainland.

In addition, Viva Macau, the city's second carrier, has expanded its Ho Chi Minh City service to daily, which should bring a little more volume through Macau’s airport.  The airline is growing in capacity, too. It will soon take delivery of a Boeing 767-300ER, which will allow Viva to increase capacity and frequency on its existing routes to Tokyo, Ho Chi Minh City, Jakarta and Sydney. It would also allow the airline to reach new destinations should they be opened such as Moscow or Bombay...


Officials in Penghu say they are confident of getting a referendum passed among all 90,000 of their residents to allow a casino to be built there.

According to Reuters, the Penghu County government has proposed its casino resort on 130 coastal hectares with hotels, duty-free shops, a convention centre and a golf course, costing a total of around $1BN.


Taiwan will allow persons who have worked in Hong Kong or Macau for a year or more to visit the island, it has been revealed. The measure is aimed at boosting the island’s tourism industry and is expected to generate an extra HK$2.7 billion in tourism revenue. Under existing regulations, mainlanders who had worked in Hong Kong or Macau for four years could apply to visit Taiwan as individual tourists.


This article details the small and politically influential group of business families that have loomed large over most aspects of Macau’s domestic economy for decades.  Included in the article is detail on Macau Chief Executive Edmund Ho Hau-wah, and how his family has played a prominent role in business in Macau, owning country clubs, hotels, and stakes in airlines, amongst other ventures.  The line between business and politics in Macau is often blurred.  Read the article here.

You Are My Hero

"Show me a hero and I will write you a tragedy."
-F. Scott Fitzgerald
If you spend enough time in the group-think tanks of Washington economics, you start to believe in your own storytelling. On Jim Lehrer's PBS town hall with Ben Bernanke this weekend, the Federal Reserve Chairman stated plainly that he was "not going to be the Federal Reserve chairman who presided over the second Great Depression."
Ben Bernanke, thank you so much for saving me. You are my hero.
This is the very same man who is allegedly an academic messiah of Depression histories. This is the very same man that no less than 3 months ago was signing off on a compromised and conflicted fear-mongering campaign that bailing out Wall Street had to be done or the end of the earth cometh. This is the very same man who is using his history books and lagging economic indicators to prognosticate the future of America's economy. This is a tragedy.
Obviously, if Bernanke was the hero of this story the US currency wouldn't have traded down for the 3rd consecutive week last week. Alongside Goldman printing $5/share in earnings and Citigroup paying a trader $100M (yes, that's million), 99% of Americans who are allowed to, get the joke. The joke is that Bernanke doesn't get that he is the lemming that's getting the Debtors, Bankers, and Politicians paid.
Lemming? That's harsh Keith. Yes, folks, and so will our commoner lives be if I am right and we see what I have been calling for in the 4th quarter - reflation morphing back into inflation. While the high side of my Range Rover macro theme for Q3 was off the mark, my other 2 macro themes (Burning The Buck and Reflation Rotation) continue to play out in lock step.
This morning you are seeing the US Dollar Index trade down again to $78.56. This is only the 4th time in almost 40 years that the $78 level has been tested. That matters.
Since March, the world's reserve currency has basically crashed. I know, I know - Barron's is calling for "Hello 9,000: The Dow's Run Is Far From Over", but there is a loser in the game of everything priced in US dollars reflating - the Dollar! The US currency has lost -12% of her credibility in less than 4 months. That's a crash.
Rather than appearing on 60 Minutes, PBS, and writing Wall Street Journal Editorials, I suggest Mr. Bernanke starts spending some time looking at real-time, marked-to-market, leading economic indicators. Since it's clear that he hasn't done the math, here are some things to look at:
After keeping a completely politicized "emergency" level of a Fed Funds rate at ZERO, look at what these prices have done in the last 2 weeks:
1.      The CRB Commodities Index +7.5%

2.      Oil +15%

3.      Copper +14%

4.      Gold +5%

5.      SP500 +11%

6.      10-year US Treasury yields 3.71%

As Bernanke hinged his cart to the conflicted, saying that he'll change his monetary policy "when the economic outlook requires us to do so", the world simply sold more US Dollars, and continued to buy everything else. If America is willing to let her currency burn, why hold any more of it?
Have no fear, our super heroes Hillary Clinton and Timmy Geithner are here. This week, China is sending their B-team to Washington to meet with our equivalents of Dora The World Peace Explorer and her buddy Go Go Goldman Diego to talk about China's largest invested position. How do you think these meetings are going to go? Go Go doesn't do global macro...
Again, maybe... just maybe, Main Street isn't as stupid as Washington makes them out to be. Maybe they see the Reflation Rotation coming for Christmas 2009. Maybe that's why President Obama's approval rating just hit a new low.
Maybe people get that the "Great Depression" narrative fallacy was a purely political one. Maybe China gets that this situation is going to end wherever they decide it will. Maybe today's CNBC heroes are writing the history of the American currency tragedy right before our very eyes.
Keep those eyes wide open. The level of group-think we are seeing in the US market is generational in scope. My refreshed levels for the immediate term TRADE in the SP500 are 948 support and 990 resistance. If the Buck continues to Burn, we'll get our 990, and the said Great Depressionista bankers will get their raise.
Best of luck out there today,


QQQQ - PowerShares NASDAQ 100
-With a pullback in the best looking US stock market index (Nasdaq) on 7/24, we bought Qs. The index includes companies with better balance sheets that don't need as much financial leverage.

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 reacceleration, there are a lot of ways to win being long Australia.

CYB - WisdomTree Dreyfus Chinese Yuan- The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

COW - iPath Livestock - This ETN tracks an index comprised of two thirds Live Cattle futures, one third Lean Hogs futures. We initially began looking at these commodities because of recession inspired capacity reductions combined with seasonal inflections. A series of macro factors including the swine flu scare, a major dairy cattle cull in response to collapsing milk prices and the collapse of the Argentine agricultural complex due to misguided policy provided us with additional supporting fundamental data points for the quantitative set up in price action.  

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.

- Buying back the GLD that we sold higher earlier in June on 6/30. In an equity market that is losing its bullish momentum, we expect the masses to rotate back to Gold.  We also think the glittery metal will benefit in the intermediate term as inflation concerns accelerate into Q4.

XLI - SPDR Industrials - We don't want to be long financial leverage, which is baked into Industrials.

EWI - iShares Italy - Italian Prime Minister Silvio Berlusconi has made headlines for his private escapades, and not for his leadership in turning around the struggling economy. Like its European peers, Italian unemployment is on the rise and despite improved confidence indices, industrial production is depressed and there are faint signs, at best, that the consumer is spending. From a quantitative set-up, the Italian ETF holds a substantial amount of Financials (43.10%), leverage we don't want to be long of.

DIA  - Diamonds Trust- We shorted the financial geared Dow on 7/10, which is breaking down across durations.

EWJ - iShares Japan
-We're short 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.

XLY - SPDR Consumer Discretionary
- As Reflation morphs into inflation, the US Consumer Discretionary rally will run out of its short squeeze steam. We shorted XLY on 7/9 and again on 7/22.

SHY- iShares 1-3 Year Treasury Bonds- If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.

UA: I’m issuing a challenge….


27 JULY 2009



If I hear one more person tell me that Under Armour is too expensive, I’m going to scream. I’m not even going to rehash the consensus short case headed into the quarter as well as my rebuttal (see the half dozen notes I’ve written on this over the past few weeks), but would encourage those ‘valuation shorts’ to drill down what the really appropriate metric is for UA.  29x earnings and 11x EBITDA. Yes, scary at face value. But who are you going to compare this to? Abercrombie??? Coach???? Dick’s???  I’ll take that comparison, as well as just about any other in the entire Consumer space. But we need to consider the total addressable market size.  These are companies that are so much further down the market share penetration curve than UA that it’s almost ridiculous to make the comparison.  We’ve got to factor growth into the equation here.  We sliced and diced the addressable market for 18 different consumer names, and no one comes close to how cheap UA is on an Enterprise Value to Total Addressable Market ratio.  In fact, with UA at 1.4% we’re looking at a median closer to 5% for the names people traditionally view as peers.

Also, unlike many of these other companies – UA actually has a plan on how to tap this market.

Yes, this will spur plenty of hate mail from people that don’t like the story here (and there are plenty of them), but my challenge is this… Find me a real company in the Consumer space that is cheaper than UA relative to the addressable market that the company is proactively planning to capture.

UA: I’m issuing a challenge…. - table for post



Some Notable Call Outs

  • Beginning on Friday and lasting through Sunday, off-pricer hosted its first Lululemon sale. While on the surface it may seem alarming that LULU is clearing goods through an online retailer other than its own site, it is important to keep this in perspective. The limited time event offered a total of 61 items, ranging from gym bags to pants. The items were mostly priced at 50% off original retail prices and it appeared that at least half of the items were sold out within an hour of the beginning of the sale. Given the growing list of prominent and premium brands taking advantage of this new channel for disposition of goods, we wouldn’t be surprised to see more events in the future. Furthermore, the ability to have a direct relationship with the customer via ecommerce offers great insight not previously available in a physical outlet or warehouse sale setting.
  • Back to school season is just beginning and the marketplace for computers already appears extremely competitive. Over the weekend on its blog, Wal-Mart advertised the first sub $300 laptop for the key back to school season. The model made by Compaq is full-sized (not a netbook) with a 160GB hard drive and 3GB of RAM. A quick check on Sunday night indicated the item is already sold out online after just one day. With the season still early and less competition in the electronics space, we’ll watch pricing very carefully for signs of what may also be a very promotional holiday season. With netbooks offering less features but at a more compelling price, we wonder if this is the first sign of price compression in the traditional notebook category beyond normalized deflation.



- Report on global high-end luxury market - The worst has become to an end in the global high-end luxury market, according to the Italian luxury association Altagamma.  "There're signs, in June and July, that show a significant improvement," said Santo Versace, president of Altagamma. Greater China, the Middle East and Latin America are showing signs of slight growth while the US were still seen a downward trend in July, Versace said.  Altagamma also expects the world's $249 billion fashion industry's earnings before interest, taxes, depreciation and amortisation to drop by 21% in 2009. <>

- US clothing retailers are hoping to raise their bottom line by expanding their offering of accessories - Gap Inc launched the first accessories-only Edition under Banana Republic in May while Henri Bendel is expanding its offerings this summer with six new 2,000 sq ft accessories stores. Casualwear retailer J.Crew opened its first accessories boutique in New York last month and will release its third accessories catalogue. Accessories accounted for around $165 million last year, or 12% of its sales, almost double the amount in 2004. Jewellery and bags can yield as much as double the 40% profit margins of apparel, according to the international press, because they take up less space and have more of a timeless appeal. Women's accessories sales by unit for the three months ended April 30 were up 2% from a year earlier, according to market research company NPD Group. <>

- US ban on imports from Burma has been renewed for three years - The American Apparel & Footwear Association (AAFA) has urged both chambers of the US Congress to promptly renew the Burmese Freedom and Democracy Act of 2003. The US ban on imports from Burma has been renewed for three years last week and the legislation is awaiting the White House's signature. "The US apparel and footwear industry strongly stands behind the commitment the US made in support of human rights," said AAFA president and CEO Kevin Burke. "These sanctions are justified by the countless atrocities committed against the Burmese people everyday." He continued: "Eliminating oppression from the world market must be a multilateral effort... The global community must join together and implement global sanctions to demonstrate that oppression will not be tolerated in the global marketplace."  <>

- The Great Retail Rationalization of the Great Recession - And even though the economy already has forced retailers to take a scalpel — or a meat cleaver — to their store portfolios, there’s still plenty of excess to cut. There is currently 46.6 square feet of retail space for every man, woman and child in the country, an increase of 14.2% since 1990, according to CoStar Group. A few retailers are continuing to grow. Buckle Inc. plans to open 21 stores this year and Kohl’s Corp. is cutting the ribbon on 56 new outposts this fall. But that expansion largely comes at the expense of fallen nameplates or with the help of landlords who want to keep their malls filled. The days of unfettered expansion are over. Per capita retail space is down slightly from a year ago, the first decline since 2000. And the pullback is expected to continue. As of April, retailers were on track to close 4,600 doors this year, according to a report from the International Council of Shopping Centers. That’s on top of 6,913 closures last year.  <>

- Several designer jewelry firms win lawsuit - Several designer jewelry firms won an apology and “substantial” cash settlement last week from an online jeweler who used the phrase “inspired by” alongside the jewelry brands’ names in its marketing. Under the terms of an agreement revealed July 24, and its president, Elena Castaneda, promised not to use the trademarked designs of David Yurman, Cartier, Van Cleef & Arpels, Bulgari and Gucci in the future and apologized for the harm its unauthorized wares had already caused the companies. The plaintiffs said the settlement also included a “substantial cash component,” which wasn’t disclosed. The U.S. District Court in Manhattan issued a permanent consent injunction against on July 9, barring the Web site from further infringements. The jewelers filed two separate lawsuits against the Web site in 2007, which the court eventually consolidated into one case. They accused the site of copying various trademarked designs and selling them as “inspired by” or “replicas of,” among other allegations. On Friday, the site’s homepage included jewelry identified as “Tiffany inspired.”  <>

- Insight into the sneaker retail business - For owner Farshad Arshid, opening his Standard sneakerhead boutique in Atlanta was a return to retail. Today, the stores stock footwear, apparel and accessories, with 40 percent to 45 percent of the business done in shoes. This time, being back in retail is a labor of love, Arshid said. “We’re fans of this stuff. We wear it ourselves.” THE RIGHT MIX: Standard stocks sneaker favorites such as Nike, Vans, Puma, Alife and DC. PROMOTIONAL STRATEGIES: The store’s Website gets 2,000 to 3,000 unique hits a day, and both the store and its staff are on Twitter — Arshid also likes to reach out the old-fashioned way. There are 3,000 clients on Standard’s direct-mail list, and cross-promotions with other local stores draw new ones. In addition, Arshid leverages his connections in music to bring new artists and DJs into the stores. And even in price-conscious times, Arshid said he is trying to limit how often he goes on sale. FACING CHALLENGES:  If sales are down in the 10-to-15 percent range, he said, they will count themselves lucky. Their dollars-per-ticket has dropped tremendously. They work twice as hard to make the same sale. <>

- Prints by artist Alexander Girard will hit retail for the first time - The artwork moves from museum walls to a home collection this month at Urban Outfitters, in partnership with máXimo: art & research. Alexander Girard for Urban Outfitters, manufactured by The Millwork Group, features printed bed linens, pillows, drapery, shower curtains and wall art. The line includes prints from original Girard works such as Alphabet, Multiform, Eden, Loveheart and Moon with Flag. máXimo: art & research is the agent to the Estate of Alexander Girard. Besides Girard, the Los Angeles-based Millwork Group's other licenses include Robert Crowder Collection and Christopher Bettig/The Mountain Label. The home textile company also plans to announce a new license with a world-renowned pop artist. <>

- A pop-up art gallery featuring the fall's Gap Red Artist Edition T-shirt Collection - The exclusive T-shirt designs for men and women are produced by various established and up-and-coming artists, including James Jean, Deanne Cheuk, Stine Persson and others. The exclusive designs are available for $28 at the gallery, as well as at Gap stores nationwide, and the Whitney Museum of American Art in New York City. The line is in partnership with Red, where 50 percent of profits sold go toward the Global Fund to help eliminate AIDS in Africa. The pop-up art gallery, which will close on Aug. 30, will also feature original works of art from featured T-shirt artists, including paintings, sculptures and sketches. <>

- It took a harsh economic downturn to teach apparel exporter R. Sivaram what works and what doesn’t in Indian retail - When his Royal Classic Mills Pvt. Ltd, a company based in the Tamil Nadu textile town of Tirupur, rolled out its first store in 2005, the domestic retail sector was growing and many exporters were eyeing a share of the market. Four years later he is rethinking its domestic business model. In June 2008, Royal Classic shut its flagship store on Brigade Road, a Bangalore high street, where it was paying a monthly rental of Rs1 lakh. Since then, Royal Classic has shut nearly 10 stores in other cities, relocating from shopping malls and premium locations to cheaper areas. Exporters who have already got into retail don’t have a choice, but no one would get into the business now. <>


RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): UA

07/24/2009 09:47 AM


After an awful downgrade by Sterne Agee, the stock is up +17% in less than 2-weeks. I'll sell here and buy it back on a down move. McGough continues to be the bull. KM



WEYS: John Florsheim, President & COO, sold 24,054shs ($577k) after exercising the right to buy 24,054shs less than 10% of common holdings.



UA: I’m issuing a challenge…. - SV 7 27 09



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You already know our big picture view on HOT/lodging. 2010 estimates are still too high as cost cutting has played out and top line will continue to lag the economy. However, we’ve got insights on some important, but less obvious items.


American Express Deal

As Starwood disclosed in its release, American Express is paying them $250MM to buy “points”, which can exchange for rewards by American Express users.  This is basically an interest free loan that Starwood is getting, and in return they probably gave American Express a nice discounted rate.  When American Express customers redeem their points for a stay at a Starwood branded hotel, Starwood will pay the hotel owner for the stay.  There will be a liability on Starwood’s balance sheet to account for the $250MM in payment that they eventually will have to make.  However, these payments will never hit the income statement as one would expect and instead just flow through working capital.  Somehow the amortization of gains hits the income statement but the negative amortization of a realized liability does not.  At the end of the day, cash is cash and over a number of years Starwood will pay out $250MM of cash related to this advance.


Italian Tax Credit

Since the Italian government is in desperate need for cash, it struck a deal with property owners.  For a small upfront payment today (undisclosed of course- but I was told it was small), Starwood was able to buy $120MM worth of tax credits that they can use to defer any future capital gains should they sell any of their Italian trophy assets.  Not a bad move, since the basis on those assets is low and the Italian capital gains tax rate is 28%. This is probably a little signal from Starwood that they are trying to sell some of these assets.  The cash flows on these hotels are pretty de-minimis so the multiples will look great.  Whether there are there still buyers of trophy assets out there is the real question.


Non-core Asset Comment

HOT referred to non-core assets on its conference call.  My two cents is that they are looking into a possible sale of Bliss... it’s their only non-core non-lodging business.  They already license out the use of their brands for retail.


What’s in “Other Management & Franchise Revenues” and “Other (2)”?

You already know our belief that non-cash, non-recurring profits should not get the 15x multiple normally assigned to “Fee” profits just because they’ve thrown it in the “Fee” bucket.  Here is a clarification of what else was in those two line items:

  • Termination fees can appear in either bucket but this time it was behind door #2, lumped in with Bliss Spa income
    • Just as an FYI, Starwood doesn’t get the termination fee if it pushes hotels out of the system because they fail to maintain brand standards, they usually only get the fee when an asset changes hands
    • In a default scenario, we do not believe that many hotels will be de-flagged.  However, if they are de-flagged, the debtor can reject existing contracts and probably get away with paying pennies on the dollar as a termination fee
  • Not sure what the other $10MM of revenues are in the “Other Management & Franchise Revenues (1)” are.  However, changes on hedges are also recorded here.



Key data points for the week of July 27-31 will include the release of Second Quarter Advance GDP on Friday, a slew of housing data and a series of Treasury auctions.

Monday July 27:

  • U.S.: Census Bureau new home sale data for June will be released at 10 am with Forecasts predicting a modest improvement over May’s 342, 000. The Treasury will be auctioning 20 year TIPS at 1PM.
  • Europe:  German August Gfk Consumer Confidence and July CPI data will be released on Monday, as will Eurozone June M3 figures.
  • Asia: Hong Kong Trade Balance data for June will be released on Monday with forecasts indicating an expansion of last month’s 11 billion HKD deficit.

Tuesday July 28:

  • U.S. Case-Shiller home Prices for May will be release on Tuesday morning, as will ICSC retail chain store sales index and Redbook weekly data. Conference Board consumer confidence figures for July and ABC Consumer Comfort data will be released in the afternoon. The Treasury will be auctioning 2 year notes at 2PM. 
  • Europe: June PPI data for France and Consumer Confidence data for Italy will be released on Tuesday.
  • Asia: Japanese Retail Sales and South Korean Current Account figures for June will be released on Tuesday.

Wednesday July 29:

  • U.S.: Mortgage application figures will be released on Wednesday morning as will Census Bureau Durable Goods and Shipments data for June. Weekly EIA Oil Stocks will be announced at 10:35 am and the Treasury will hold a 5 year note auction at 1pm.
  • Europe: BOE June consumer credit, Mortgage and Mortgage approval figures will be released on Tuesday as will M4, while Business confidence data will be released in Italy.
  • Asia: Japan’s June industrial Production, Shipments and Trade balance data will arrive on Wednesday evening. 

 Thursday July 30:

  • U.S.: Weekly Initial Claims data will be released on Thursday –recall that the prior week’s increase which followed three consecutive declines.  EIA gas stocks will also be released on Thursday morning and the Treasury will hold a 7 year note auction at 1pm.
  • Europe: UK Nationwide House Prices and Gfk Consumer Confidence for July will be released on Thursday, as will German Unemployment figures and European Commission Confidence measures for July.
  • Asia: July CPI and PMI data will be released in Japan on Thursday but, with the LDP in a struggle for survival in the coming election, all eyes will be focused on June employment and personal income data also slated for release. Although the LDP has ruled Japan for almost the entire period since it was founded in 1955, the current economic stagnation has set the stage for a sweeping victory for the opposition Democratic Party.

Friday July 31:

  • U.S.: Q2 GDP advance data will be released by the BEA on Friday at 8:30.
  • Europe: July CPI data for the Eurozone and Italy will be released on Friday, as will Italian CPI and unemployment.  Swedish Q2 GDP will be announced on Friday, with consensus estimates anticipating a further decline from Q1’s measure of -6.5% Y/Y.
  • Asia: Thailand trade and production data for June will be released on Friday.

“Shoots” in Europe?

The July Purchasing Managers’ Index was released by Markit Economics today for the Eurozone, Germany, and France. While we believe that making an absolute call on Europe would be shortsighted due to the uncorrelated returns across the region based on unique underlying fundamentals, today’s report provides a useful metric for comparing the two largest individual EU economys’ performance on a relative basis.

According to the composite PMI index, Eurozone aggregate manufacturing and service industries rose to 46.8 in July from 44.6 in the previous month.

For Germany, the largest economy in the Europe, PMI improved on a monthly basis. The Manufacturing index rose to 45.2 from 40.9 in June and Services index rose to 48.4 from 45.2, just short of the 50 level that divides contraction from expansion. France’s PMI for manufacturing advanced to 47.9 from 45.9 while services declined to 45.5 from 47.2.

The Ifo Institute also reported today that the German business climate index for July rose to 87.3 from 85.9 in the previous month, exceeding an expected gain to 86.5, and notching a four straight months of improvement.

For Germany, a country that has been on a short list of Eurozone countries we’re bullish on, today’s PMI and business confidence numbers indicate a step in the right direction. From a fundamental set-up we’ve been positive on Chancellor Merkel’s leadership; she has balanced a stimulus package (85 Billion EUR) with timely incentives such as the cash-for-trash auto rebate. These initiatives now appear to be  supporting modest growth recovery, which we see making steady improvement into 2H ’09.   

Germany’s powerful manufacturing capacity remains a primary structural advantage, with recent positive (but lagging) production signals that show sequential improvement on a monthly and annual basis, as well as Factory Orders that were up 4.4% in May over April levels. While the internal demand picture appears to be improving with the low CPI/low interest rate environment bolstering consumer spending, exports have shown a faint sign of improvement at 0.3% in May M/M. Because exports make up nearly half of German GDP, they could remain a stumbling block for growth if we don’t see measureable improvement in Q3 with production trends reversing in the absence of external demand.  For now though, the positive catalysts appear to be gaining on the negative, making Germany the most attractive of the primary EU economies on a relative basis.  

As we continue to monitor the European patient we’ll be looking to pair off our short position in Italy (EWI). Germany was down today along with most Western European indices, capping 9 days straight of gains or a 12.9% move for the DAX since 7/10.  Stay tuned as we look to buy the German etf EWG on pullback.

Matthew Hedrick


“Shoots” in Europe? - GermanPMI

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