Monkey Bars: SP500 Levels, Refreshed...

Make no mistake, I can swing from these bars as willingly as the next monkey. As long as the Buck Burns, you’re going to see plenty other primates chase one another right on top of this high wire however. It’s getting crowded up here. If the US Dollar flinches to the upside, everything priced in those dollars will fall down.


Across durations, this market is bullish – but bullish is as bullish does, and for the first time in 12 trading days I can quantify a slowdown in price momentum within a 25-50 basis point range. Remember, tops are processes, not points – all we can do is monitor the math, real-time, in order to give us signals.


This morning, my macro model was spitting out an immediate term resistance level of 1,004. After today’s fits and starts, the rally monkeys can’t get me to go much higher. In the chart below I have outlined 1,005 as my new line if immediate term TRADE resistance (dotted red line).


Immediate term TRADE support bumps up to 985 (dotted green line). When/if we selloff, that’s your new yellow banana.


Keith R. McCullough
Chief Executive Officer


Monkey Bars: SP500 Levels, Refreshed...  - monkey12


Picture of The Week: Timmy!

Poor Timmy is being re-regulated by the laws of his own gravity. He is who he is – a squirrel hunter on a mission to protect the legacy of De Investment Banking Club.


It’s not new news anymore, but the context of yesterday’s news that Timmy blew up on the ladies (Sheila Bair and Mary Shapiro) for not cooperating with the proposed rules of De Club is rather striking. Bair, in particular, doesn’t believe the Fed should have the almighty powers of everything oversight/risk management. Meanwhile Geithner wants to hurry through some reactive reforms and say he accomplished something before he gets fired.


Yes Timmy, President Obama is watching you – his approval ratings aren’t hitting new lows as the market hits new highs solely because of him.


The New Reality is that we have a Secretary of the US Treasury who has no qualms watching the Buck Burn (the US Dollar is hitting new lows again today). The long term credibility issues of the US Financial System continue to manifest in a currency price that’s marked-to-market every day. Market’s don’t lie; but some of these people really do.


Shame on you Timmy. You could learn a lot from Sheila Bair if you had it in you to listen while you hear.



Keith R. McCullough
Chief Executive Officer

(picture courtesy of Getty Images)

Picture of The Week: Timmy! - timmy

US Consumer: To Save, Or Not To Save...

This morning’s US Personal Consumption and Savings stats provided a little shock and awe to the “US Consumer is going away” camp’s short thesis. I shorted the XLY (Consumer Discretionary) ETF yesterday, so I am not particularly enthused with this report myself. Thankfully, I am not in the consensus “savings are going to be the death of this country” camp.


My call on the Savings rate being a headwind for consumer stocks was a 2007-2008 Macro Theme. It was born out of an expectation for the savings rate to go from zero to somewhere in the mid-single digits. Today, if you had a dime for every economist or strategist who is whining about the consumer saving every nickel they earn, you’d be earning a good keep. AFTER the last reported US Savings rate hit a 14-year high, you started hearing that clanging monkey sound of rear-view looking consensus.


Today, what is a monkey to do? Well, now that the savings rate just dropped from that 14-year high of 6.2% right back down to 4.6% I suppose you can hope no one saw the number. Or hope that sequential decelerations on the margin don’t matter to markets. Ah, but hope dear short selling friends is not an investment process.


In the chart below you’ll see the dangers associated with straight-lining consensus fear into a perpetuity. Yes, the American consumer should save more. Yes, they are saving more. Yes, they probably will save more than 5%. But in no way shape or form should you expect them to save at the rate they did in the 1970’s.


Why is that Mr Macro Monkey? Well, I think that’s pretty simple. If you give an American a ZERO rate on their savings. How much do you think they are going to save? While he wasn’t popular on Wall Street, at least Paul Volcker got the conservative American saver a return on their hard earned capital.


Some things are that simple. Give an American banker free moneys, he’ll pay himself a bonus. Teach Americans to save, and you’ll pay this country’s investment pipeline for life. Savings and Investment are interrelated. One perpetuates the other – ask the Chinese about that.



Keith R. McCullough
Chief Executive Officer


US Consumer: To Save, Or Not To Save...  - PS


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Total table revenue in July grew 3-4% y-o-y, driven by 7% growth in the VIP market and a 5% decline in Mass. City of Dreams ramped nicely after a soft start and drove the market VIP growth.


Crown, MGM, and Galaxy were the clear winners this month and the only operators whose properties experienced positive table revenue growth.  Crown’s gains were a function of City of Dreams (CoD) ramping up and very high hold at CoD following disastrous hold in June. While both LVS and SJM where both down this month, at least SJM had weak hold to blame.



  • Mass tables were up 1% y-o-y. LVS continued to remove mass tables from all three of its properties this quarter.  We estimate that total mass tables at LVS declined 28% y-o-y
  • VIP tables up 17 y-o-y, primarily driven by the additions at Four Seasons, WYNN, CoD, MGM and somewhat offset by reductions at SJM


Y-o-Y Property Observations:

LVS table revenues down 10%

  • Sands was down 1%; Mass was down 38% offset by a 54% increase in VIP win
    • VIP RC decreased at Sands (~25%),  however hold comparisons were very favorable
    • Venetian saw decreases on 17%; Mass down 14% and VIP down 19.4%
      • VIP would have been worse  if not for better hold
      • Four Seasons had negative hold on its VIP RC in July (~1%), volumes were up slightly from June levels
      • Slot revenues increased 16%

Wynn table revenues were down 3%

  • Mass was down 17%, offset by a 2% increase in VIP
    • Driven by higher RC volume; note that WYNN has materially increased the # of VIP tables in 2009

Crown table revenue up 19%

  • Altira was down 53.6%, RC volumes were down over 45%
  • As speculated by the media, CoD had a big month, generating 129MM of revenues
    • $107MM came from VIP win (so much for being a mass property)
    • This huge July number is not likely to be repeated, as it appears that hold was indeed the primary driver. We estimate that high hold added approximately 37MM of revenues to the property

SJM table revenue was down 6%

  • Mass was up 10% while VIP was down 19%
    • VIP decline driven solely by weak hold, RC was up

Galaxy table revenue was up 17%

  • Starworld continued to perform well with table revenue up 31%, driven by a 47% increase in VIP revenues despite weaker hold

MGM table revenue was up 36%

  • Mass revenues were down 9%, but VIP revenue was up 52%, more than offsetting mass weakness


Market Share:

-LVS share dropped to 20.9% from 25.4% in June

  • Sands share remained consistent at 8.6%
  • Venetian & FS share dropped to 12.3%  from 16.8% in June
    • Most of the drop was driven by VIP down 5.5% to 9.9% from 15.25% in June

-WYNN share was up to 14.5% vs 13.7% last month

-Crown market share practically doubled to 17.8% due to the strong performance at CoD

-SJM share took a big 7% hit in July, ending at 23.8%, driven by a big drop off in VIP revenue

-Galaxy at 10.6% lost some share this month compared to 12.8% share last month

-MGM had a large gain of 400bps, as its share jumped to 12.4% - all driven by VIP revenue


JULY GOT HOTTER IN MACAU  - macau july total

JULY GOT HOTTER IN MACAU  - macau july mass

JULY GOT HOTTER IN MACAU  - macau july rc turnover

Conference Call Takeaways - TAST and TXRH

Summary Thoughts….

Both companies’ earnings benefited from cost cutting and commodity deflation.


Both companies are more cautious regarding top line expectations for the balance of the year, given current economic conditions, the increasingly competitive environment, as well as recent sales trends. 


Reduced capital spending is helping to reduce debt and increase cash on the balance sheet



COMMENTS ON TEXAS - Although the Texas economy has held up better than most of the country for some time, TAST said it is seeing some softening and mounting consumer pressures.  Recent unemployment reports indicated that conditions have worsened, and although the June unemployment rate at 7.5% is below the national average, Texas lost the most jobs, second only to California in June.


THE $1 MENU - In response to a question about whether advertising supporting the $1 Whopper Junior has begun to at least shift the trajectory of sales in July, or will the upcoming coupon help, management stated, “Yes, the Whopper Junior advertising is maybe two weeks old, so -- the early returns for the last couple of weeks, the sales have continued to struggle.”  The dollar menu is no longer a unique message to consumers.

CURRENT SALES TRENDS - MAY/JUNE/JULY BKC comps were down 5%+.  The Breakfast day part is getting hurt the most.  Thank you MCD.



SALES TRENDS SLOWED DURING THE QUARTER - For the quarter, the entire sales decrease was driven by lower traffic, as average check was flat.  By month, comparable restaurant sales were down 3.2% in April, down 3.7% in May and 4.4% in June.  In addition, as reported in the company’s press release, comparable restaurant sales for the first four weeks of the third quarter were down 5.5% to 6%.


NEGATIVE FORWARD-LOOKING INDICATOR - Average unit volume decreased 5.1% for the quarter, compared to the same-store sales decrease of 3.7%.


RETURN TO GROWTH – In the short run, there is no change to current development plans.  But, the company will accelerate to faster growth when it sees lower development costs and a better economic climate.


COMMENTS ON TEXAS – “We saw things in Texas specifically get a little bit softer during the June period, but then come back. Historically, Texas has been -- or recently, Texas has been a pretty strong state for us, as well as you mentioned for others, I believe. We did see things get a little bit softer in the latter part of the quarter in Texas.”


This could be a potential negative for EAT in the upcoming quarter.      



04 AUGUST 2009



I highlighted yesterday about how the 1.5x outperformance of retail in July makes perfect sense to me given the fact that the consensus earnings outlook rose steadily from 6% to 11% (NTM), and how we’re likely looking at 20% within a 3-4 month time frame. But let’s not lose sight of duration. As our clients know, we think of things as it relates to TRADE, TREND, and TAIL. Simply put, this is in terms of 3 weeks, 3 months and 3 years.  The analyst owns the fundamental debate, and we mesh with Keith on the duration. The bottom line is that it would be irresponsible of us to ignore ANY of those durations from a risk management perspective. That’s our process.


Retail is interesting. Still looking good from a TRADE perspective, but like Consumer Discretionary overall (below), momentum is running out of steam. I maintain my view that it’s going to be tough to keep the retail balloon underwater with 14% of the group held short while both revision factor and growth rates are headed higher. But this is an opportunity to either trim into strength or prep to buy more quality names on a pullback. My all-around favorite continues to be PSS. I also like BBBY, RL (they’ll smoke the qtr, though reaction to guidance w the stock at $64 worries me), and LIZ. Names to sell into strength include ROST, GIL, ICON and WRC.




Some Notable Call Outs


  •  Add Lane Bryant to the list of retailers embracing social networking. The company launched a social community, called Inside Curve, in an attempt to connect consumers with each other as well as with new products, styles, and reviews. A quick glance on the site reveals 4,000+ members in addition to 8,000 followers of the brand on Facebook. While social networking isn’t a replacement for focus groups (yet), it’s likely that real time communication with consumers will ultimately change the manner in which the consumer “votes” for a particular brand.


  • With the political situation in Honduras still unresolved, late last week Adidas, Nike, and Gap sent a letter to Hilary Clinton asking her to restore democracy to the politically unstable nation. The letter was drafted with support of a local labor rights organization. Noticeably absent from any commentary on the situation are Hanes, Gildan, and Russell Athletic. While it is not common for a corporation to take sides in political conflict, it appears that Adi, Nike, and Gap are attempting to build goodwill with the local workforce and the U.S government at time when a resolution in Honduras still appears elusive.


  • By now you’ve probably seen that Radioshack is going to re-brand itself as The Shack. A quick troll of the blogosphere suggests that even the average consumer realizes that the company’s competitive challenges go far beyond the name above the door. I have to say I agree. The one winner here is the company that was awarded the contract to make 4,000 new signs!



-Retailers in Thailand face tough road ahead with swine flu impact - Retailers in Thailand are confronting the spread of swine flu, which could jeopardize their recovery from weak economic conditions that have curbed consumer spending and cut into tourism. About four dozen people have died from swine flu in Thailand and another 6,700 cases have been confirmed, making it one of the hardest-hit Asian nations. A major Bangkok paper, The Nation, urged in a recent front-page editorial that public venues, including “schools, theaters, concerts, department stores, supermarkets and offices,” be shut for two weeks to stem the spread of the virus. Lower hotel occupancy rates and a steady drop in international tourists is proof that fears of the flu, along with economic conditions, are affecting Thai businesses. Retailers have promised to keep malls cleaner, including more frequent cleansing of restrooms, handrails and elevator buttons, to ease health fears. At Gaysorn, an upscale designer mall on Bangkok’s main retail strip, swine flu is being blamed for slower international traffic, which has fallen 10% to 15% this year. About half of Gaysorn’s shoppers are tourists, most of whom come from Hong Kong, Singapore, China, Russia and India. Public health fears have yet to dramatically affect department stores or discounters that cater to the local market. Upscale malls that depend on big-spending international tourists, such as Siam Paragon, The Emporium and Gaysorn, on the other hand, have seen their bottom lines slip because of fewer tourist visits. Department stores have seen no growth in the first three quarters of 2009 and are counting on a rebound in the last quarter. Sales at hypermarkets have dropped 1% this year, but convenience store sales increased 5%, primarily because locals are doing more shopping closer to home. An estimated 6% to 7% of Thailand’s gross domestic product is based on tourism. <>


-One-Third of Russia's Clothing Retailers Are Going Bust, Exporters Say - A third of Russia’s 42,000 clothing retailers will close by the end of this year after the economic crisis hurt local spending, according to the head of the European Fashion and Textile Export Council.  <>


-Australian Retail Sales Unexpectedly Decline as Stimulus Effect Wanes - Australian retail sales unexpectedly fell in June for the first time in four months as households spent less on clothing and at department stores. <>


-JD Sports Fashion has bought the global rights to the Canterbury and Canterbury of New Zealand brands and taken the key assets of its European licensee out of administration - JD Sports acquired the brand, goodwill and the global rights to the rugby brand for £6.5 million. JD bought Greater Manchester-based rugby kit wholesaler Kooga Rugby in July and hopes that both acquisitions can be developed profitably and that they will generate royalty income for the business. Canterbury was founded over a century ago in New Zealand and is a specialist in rugby apparel including technical and lifestyle products.  It fell into administration last month after being hit by the weak pound and expanding unsuccessfully into new sports categories.  <>


-Nepal Trade Union seeks to increase each workers salary by 40% - In view of Nepal's government increasing salaries of civil servants, the affiliated All Nepal Trade Union Federation (ANTUF) has sought a 100% increase in the worker allowance and 40% hike in basic salary . President of the Garment Association of Nepal (GAN), Prasanta Pokharel also confirmed that the association has received demands  for increased salary on a part with civil servants who have recently enjoyed a 4-6% raise. ANTUF official said that if their demands were not met, their union will announce a struggle program within 10 days. But the industrialists are responding to the situation by saying that they are not compelled to increase the pay and allowances, since they had increased the salaries just before nine months. Acting president of the Federation of Nepalese Chambers of Commerce and Industry Suraj Vaidya said the additional increments in salary will force industries to close down as they are already operating below capacity at present. Number of employees in the garment sector has shrunk to 30,000 from 50,000. <>


-Smaller retail chains and specialty stores are finally getting some respect - They are being pursued to fill the real estate void created by scuttled expansion plans, liquidations of midsize mall players such as Gottschalks and Mervyns, the closing of specialty concepts like Ruehl and the decision of major chains, including Ann Taylor, to eliminate stores. Malls are now looking to the regionals and locals to build more of their tenant base than they ever have before. The overall retail vacancy rate increased to 7.5% in the second quarter from 6.3% in the second quarter of 2008, according to CoStar Group, a real estate research firm. At the nation’s 1,152 malls and lifestyle centers 5.1% was vacant, compared with 3.6% a year ago. Although a few retailers, including Kohl’s and Buckle, are opening stores, total retail square footage is forecast to keep shrinking as about 4,600 doors shut this year, according to the International Council of Shopping Centers. <>


-Sportsman’s Warehouse to Emerge from Bankruptcy - Sportsman’s Warehouse, Inc. announced that the U.S. Bankruptcy Court for the District of Delaware has confirmed its Plan of Reorganization sponsored by an affiliate of Seidler Equity Partners, a private equity firm based in Southern California. The company expects to formally emerge from bankruptcy by August 15, 2009 and will continue to operate 26 stores across 14 states. <>


-Quiksilver, Inc. entered into an agreement with its European banking partners - Quiksilver is going to consolidate its European debt obligations, including previously uncommitted lines of credit, into a new committed 4-year facility consisting of €170 million ($243.9mm) in term loans, a letter of credit facility with a capacity of €40 million ($57.4mm) and a €58 million ($83.2mm) revolving line of credit. <>


-Timberland names a new senior e-commerce executive - In addition to e-commerce, Mark Bryden will oversee all marketing, retail and wholesale operations as the vice president and general manager of North America. Bryden worked at SmartWool Corp., an outdoor performance brand Timberland acquired in 2005. <>


-Former CEO of The Children’s Place resigns from board, sells back shares - Ezra Dabah, former chairman and CEO of The Children’s Place, has agreed to resign from the retailer’s board and sell back half of the 4.9 million shares he and members of his family own as holders of a 16.6% share of the company’s common stock. <>


-Japan's Uniqlo has tough month from rainy season - Fast Retailing Co. Ltd., the company that owns the fast-fashion chain, said Tuesday that an unusually long rainy season has bit into business and caused the brand’s same-store sales in July to fall 4.2%.  That’s an abrupt change from the eight consecutive months of comps growth the company registered from November through June. The number of consumers in July was almost flat, down just 0.3% from the previous year but average spending per consumer dropped by 3.9% from the same month a year ago. Rainy season in Japan, which normally ends in mid July in most parts of the country, has persisted for a couple extra weeks. Comps were tough since same-store sales in July of last year, a warmer and drier month, rose 11.9%. <>


-Prada lenders agree to postpone term payment to 2012 - While some of their luxury peers sweat on negotiations with bankers that could determine the survival of their businesses, the lenders to Bertelli and his wife’s investment vehicle Prada Holding BV have agreed to postpone until 2012 the term payment of 450 million euros, or $641.8 million, of the group’s debt. <>


-Saks Fifth Avenue hosted its men’s wear summit - Some 65 department managers from around the country flew to New York for a three-day seminar to be introduced to the Saks Fifth Avenue Men’s Collection. On Monday morning, the retailer staged a fashion show for around 130 executives on the sixth floor of its flagship, steps away from the 800-square-foot shop for the new collection in the store’s atrium. The private brand, which is trickling into stores now, is arguably the most important launch at the store for the fall season. In the works for nearly two years, SFAMC encompasses all categories of men’s product — everything from ties, shoes and socks to suits, cashmere sweaters and outerwear. It’s also the first sign of a new company initiative to bolster private label and proprietary brands. Saks has set up a new private label-brand office and hired two people, with two additional openings that are expected to be filled shortly. “There will be more private labels to come down the road,” said Tom Ott, senior vice president and general merchandise manager of men’s, declining to provide further details for now. <>


-While shopping for beach wear and back-to-school supplies this summer, don't be surprised to find Christmas deals in the next aisle - Several retailers are starting the holiday push earlier this year—a move that industry experts say won't guarantee improved sales. Sears Holding Corp. has launched a “Christmas Lane” shopping portal for its Sears and K-Mart brands. The website invites consumers to "beat the holiday rush" and offers stocking stuffers, as well as other (typically seasonal) deals. Toys “R” Us, likewise, kicked off an in-store and online "Christmas in July" sale touting “scorching savings.” The promotion, which ran July 19 through 25, offered discounts on popular toys and gaming systems, including the Wii and Xbox 360. <>


-Iconix Brand Group is playing musical chairs with its supermodel spokeswomen - After featuring Gisele Bündchen in its spring ’09 campaign for Rampage, Iconix opted to go with the new hotness, Sports Illustrated cover model Bar Refaeli, for the fall marketing plan. But the newly pregnant Bündchen is definitely not out in the cold. Instead she’s seductively wrapped in Iconix’s London Fog products this fall as part of its continuing effort to spice up the classic label. Refaeli’s campaign, shot by Gilles Bensimon, will debut in the September issues of Elle, Lucky, Cosmopolitan and others, as well in outdoor advertising and online. Meanwhile, Bündchen’s images will begin appearing in October fashion mags and on billboards and online. <>



-Havaianas has a new leader - Alpargatas USA Inc., parent company in the U.S. of the Brazilian sandal brand, has named Afonso Sugiyama president of the company. Sugiyama previously oversaw strategic and financial planning for Havaianas in Brazil and managed the openings of the U.S. and European Alpargatas offices. Sugiyama will report to Carla Schmitzberger, the Brazil-based global director of sandals. Glen Lagerstrom, EVP of sales and marketing, and Marcio Moura, VP of finance and operations, will report to Sugiyama. <>


-DKNY Men’s spring collection reaches out to male customers from every sphere - Styles cover dress and casual, including cap-toe laceups, urban-inspired high-tops, leather slip-ons and a broad range of flip-flops. David Stamberg, SVP of sales and merchandising, told Footwear News he predicted sport casuals would pick up for spring. “We are excited about our expanded sport casual shoes,” he said. “These styles feature a lot of whites with various color hits from black to gray, from red to yellow.” DKNY Men’s dress shoes retail for $98 to $160, with sandals costing $69 to $115, while active footwear is priced at $85 to $130, and $49 to 89 for sandals. Delivery is between Jan. 25 and Feb. 10 for the first shipments. <>


-i.e. distribution reached a license agreement to produce DADA Footwear - i.e. distribution announced they have reached a license agreement to produce and distribute DADA Footwear and DADA Supreme Footwear for North America. i.e. distribution, the world wide distributor and owner of World Industries a 21 year old skateboard, footwear and accessories brand, has many years of footwear production and distribution experience in multiple trade channels. DADA brand launched in 1995, rapidly becoming a leader in the urban and the athletic markets with record sell-through numbers worldwide at Footlocker, Finish Line and Foot Action. The brand has been most recognized by it’s many athlete and musician endorsement deals. A few to note, the “Spree’s”, designed with a scale model of Latrell Sprewell’s custom Lexani “Spinner” rims from his car built into the side of the shoe. Chris Webber’s all chrome shoe is one of the top 10 shoes worn in an All Star game to date. And Xzibit the Rapper from MTV’s “Pimp My Ride” pimped himself a pair of signature DADA shoes, too. <>


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

08/03/2009 10:29 AM


What this Burning Buck will lead to is a REFLATION Rotation (reflation will morph into reported Q4 inflation). I'll be short Consumer spending into that. KM



DBRN: David Jaffee, President & CEO, purchased 300,000shs ($1.1mm) granted under the company’s stock option plan increasing total common holdings by ~6%.

GCO: Robert Dennis, President & CEO, sold 3,353shs (~$70k) that were withheld to satisfy minimum tax liability upon the vesting of restricted stock granted under the equity incentive plan, less than 2% of total common holdings.

FINL: Alan Cohen, Co-Founder & Chairman of the Board, sold 3,300shs (~$30k) a token amount relative to 1.8mm Class B shares owned.






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