Family members have confirmed with us that Stanley Ho will recover.


That's good news for the Ho family and probably Macau gaming as a whole.  Uncertainty, at least over the near term, is rarely good.  However, Stanley Ho is 87 years old so we are going to have to cross that bridge at some point.  For now, status quo looks pretty good.


THE WEEK AHEAD: August 10-14


As usual, we have a full plate of critical economic data on deck for the upcoming week. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


Sunday/Monday August 10


Europe: June Industrial Production and Manufacturing Production data will be released in France on Monday morning. In the UK, July BRC Retail Sales, Same Store and House Prices data will be released.


Asia: Sunday evening will be eventful with Japanese Machinery Orders and Current Accounts data as well as July M2, Credit and Liquidity measures. Australian Housing Finance data for June –inclusive of financing for single family homes and multi-family units—will be released at 9:30PM. At 10PM Chinese PPI and CPI data for July will be released, followed by Korean PPI at 11:00. Singapore will release revised/final Q2 GDP in the evening.


On Monday, Chinese Fixed Investment data for July will be released. With the intense scrutiny of the roaring real estate and equity markets on the mainland by bubble watchers, all eyes will be focused on this data point as a potential precursor to tightening measures.


Tuesday August 11


US: The 2-day FMOC meeting begins on Tuesday. The treasury will be auctioning 3 year notes in the afternoon.  Weekly ICSC Redbook and ABC Consumer Comfort index data will be released, as will June Wholesale Inventory and Sales figures and DOL Q2 Productivity and Labor cost data. Goods and Services data for June will be released by the Census Bureau. Weekly MBA mortgage data will be scrutinized for more signs of recovery in the domestic housing market, while EIA stock measures for oil and gasoline are not expected to contain any major changes.


Europe: German CPI levels for July will be released on Tuesday, as will June UK Trade Balance data.


Asia: Chinese Trade data for July will be released on Tuesday morning while Industrial Output and Retail Sales figures for July will be released at 10PM. We will be watching this data closely –in particular looking for any signals of cooling demand from imports. Japanese Consumer Confidence and CGPI measures for July will also be released that day.


Wednesday August 12


US:  The second day of the FOMC meeting will culminate in a policy announcement at 2:15PM. Also on Wednesday afternoon, the July Treasury Budget will be released and a 10-year note auction will be held.


Europe: France and Italy will both release CPI Data on Wednesday while the UK will have a slew of data points released, including Claimants, Wage data and the BOE Inflation Report. Eurozone Industrial Production data for June will be released and a 10-year German Bunde auction will be held.


Asia:  After a busy Tuesday, Wednesday will be somewhat quiet on the economic release front in Asia, with Indian Industrial production data for June in the morning expected to test the ability of India bulls to put a positive spin on stagnation. Japanese final Industrial Production for June will also be released.


Thursday August 13


US:  Thursday morning will bring the release of July Retail Sales, July Export Price Index, July Import Price Index and June Business Inventories.  The Treasury will hold a 30-year bond auction at 1PM, with M2 data slated for release at 4:30PM. EIA weekly Natural Gas figures will be released.


Europe: On Thursday morning, German, French and Eurozone Q2 GDP releases will dominate headlines. Spanish Consumer Inflation data will also be released that morning.


Asia:  After last week’s sequential decline, the Indian Wholesale Price Index is expected to register higher.  RBA Governor Stevens delivers his Semi-Annual testimony to Parliament at 7:30PM, an opportunity for him to again outline his decision to begin raising rates as the robust Australian economy continues to maintain positive growth.  


Friday August 14


US: We will be focused on the July CPI release at 8:30AM as well as Industrial Production and Capacity Utilization data scheduled for 9:15. The preliminary Michigan Sentiment Index release for August is on the calendar for Friday morning as well.


Europe:  Spanish Q2 GDP will be released on Friday morning, while German, French and Eurozone Q2 GDP data will be released early on Saturday morning.  Other major economic data points going into the weekend include Eurozone July CP and FT House prices for July in the UK .


Asia: Hong Kong Q2 GDP will be released on Friday morning, while Japanese Q2 GDP will arrive at 7:50PM. Expect Chinese M2 data for July to reflect even greater liquidity last month.  



The market seems to be returning to “where it should be” in terms of Macau casino revenues following the implementation of visa restrictions and the global economic slump, according to DM.  They also forecast that from October to December, we could see monthly revenues surpass the MOP10 billion levels. 



City of Dreams is a success. MPEL’s VIP volume levels are back above MOP40 billion.  MPEL is the second-biggest concessionaire in terms of rolling-chip turnover, significantly ahead of all competitors except SJM.  DM sees weakness in their mass revenue figures; the mass table revenue for MPEL in July was just MOP170 million – even lower than the MGM grand.  Mass is “where the margins are” and it is where the future lies for Cotai.  COD needs to ramp up a lot more on the mass floor in order to meet the expectations for a US$2.1 billion property. 



MGM’s “laughable” EBITDA number of US$15m was accompanied by the news that Jim Murren is sending his best operations and marketing people to devise a turnaround plan.  The numbers for July, however, show that MGM Grand Macau is no longer a laughing stock. 

MGM’s mass table revenue of MOP192 million was higher than MPEL (including City of Dreams and Altira) and not far off that taken by Wynn (MOP273 million).  MGM’s property is the same scale as its neighbor, with high quality décor, so the excuses for underperformance are running out. DM sees it as being a traffic issue which, they say, is largely predicated on poor marketing.



Stanley Ho’s recent illness has done little to dent investors’ confidence. Stock prices in both SJM Holdings and Shun Tak Holdings have not digressed from the Hang Seng Index by much this week. This is hardly surprising, given that Shun Tak is really controlled by Pansy Ho now, and SJM is run by a very capable management team led by Ambrose So.
DM asks, “what are the succession plans for its chairman and largest (indirect) shareholder?” Dr. Ho does not control a majority of shares of STDM, which controls SJM Investments, which controls SJM Holdings.  Who the other major stockholders (the estate of Henry Folk, New World’s Cheng Yu-tung) support to succeed Dr. Ho will be the key factor.





Executive Council spokesman Tong Chi-kin said that in light of the increasingly heated commission war among casinos, it was necessary for the government to introduce anti-competition measures.  The decision to cap junket commissions could be implemented within 30 days of approval and would be enforced with fines of up to MOP 500,000 or, in serious cases, by suspension of junket licenses.

Casino executives have been supportive towards the idea of a cap but the challenge has been working out how to enforce the measure among Macau’s six licensed casino operators, 200 or so licensed junket agents and 4,000-plus unlicensed and unregulated junket "sub-agents".

Some executives have publically remarked on the enforcement issue, with Sheldon Adelson joking, “I committed to do it on the honor system, the breach of which will be reason to beat people up with a wet spaghetti noodle.”

DM is skeptical about the plan, explaining that commissions are just one part of the relationship between operators and junkets.  Credit is an important component – the more a player has, the more tempted he/she is to play. The issue of “side betting” is another problem the government will have difficulty regulating.  In addition, how will it affect revenue sharing deals?



Macau’s chief executive-elect, Fernando Chui Sai-on, is flying to Beijing on Monday to collect his appointment letter.  He is expected to receive his appointment leter from Premier Wen Jiabao.  Political commentator Larry So Man-yum said Macau people were eager to see which state officials would meet Dr Chui and whether they appeared to support him.  People are also waiting to see whether Dr. Chui will ask for favors from the central government, such as easing restrictions on mainlanders visiting Macau.  Dr. Chui’s reputation has taken a hit recently, following the awarding of a MOP32 million contract to a company owned by an election assistant to Dr Chui. The contract was formally approved by Chief Executive Edmund Ho Hau-wah on July 28th, two days after Dr Chui was chosen.


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US Employment: We Warned Them...

When I posted my note on 7/6/09 titled “*Charts Of The Week: Unemployment's Double Top”, I knew almost immediately how right I was going to be on calling a top in the unemployment picture. Why? That’s easy  - no one, other than the math, agreed.


Wall Street’s narrative fallacies always make sense because they are fictional. There are inconvenient truths associated with non-fictional stories – particularly those backed by quantified mathematics.


Below Andrew Barber and I have 2 charts:


1. The first is just refreshing that Chart of The Week from last month – this is all about rate of change. This is now very straightforward. There was a double top of fear established by unprecedented sequential monthly unemployment accelerations of 50 basis points. This morning’s was a deceleration on BOTH a sequential AND an absolute year-over-year basis (see chart #1 – there is only one red bar in it).


2. The second chart should be forwarded to all of the Depressionistas. Not only is the notion of Great Depression style unemployment ridiculous, it’s quite reckless in its fear-mongering rhetoric. I think I called the short side of 2008 as well as most, but that didn’t mean I needed to buy into this consensus groupthink about the 1930’s. Never mind Depression, the peak in this US economic recessions unemployment rate is unlikely to surpass that of 1982!


Other than the shorts getting royally squeezed for one last day of Macro Matters, what do we do with all of these charts and green bananas flinging around on our screens? I’m patiently making some sales.


Ben Bernanke is way behind the curve. Both the US currency and bonds markets are reminding him of as much this morning. Once he rightly signals a rate hike versus this ridiculous “emergency level of ZERO”, the US Dollar will stop going down at the same rate. When that happens, stocks will stop going up at this rate.


Rate of change matters.



US Employment: We Warned Them...  - unempl8


US Employment: We Warned Them...  - unempl9




07 AUGUST 2009




Ok, chain store sales are out, and they showed ‘no sudden movements’ vs. the trends we’d been seeing in prior months. Now we’re in the thick of summer, earnings season is nearly over (we still have retailers – but we already know top line for many), and we’re third inning of the much anticipated ‘back half earnings growth acceleration’ period. The primary call out for me is that when stacking SSS (losing relevance due to fewer companies reporting) against Retail Sales and PCE, there’s no doubt things are getting better on a trend-line basis (see 1, 2 and 3-year trends in charts below).  Now with a solid employment report this morning, it prolongs hope that this will continue (though when an investment process includes ‘hope,’ it gets pretty thin).  


So add on bullet proof momentum in the group, and it all adds up to a whole lot of head scratching. My point is that it has been a long long time since I recall such a massive lack of fresh ideas in the eyes of who I consider to be the best, most successful, and process-driven investors.  If I were to boil down consensus right now, I’d say it sounds something like this… “I’m long-term negative on the Consumer – the story does not end well. But things are getting better on the margin and growth expectations are heading higher. Yeah, the whole planet knows that and the group has gone parabolic since March. But with 14% of the float in retail held short, and investors that were down big last year risking extinction if they miss out on too much of the group’s outperformance, it is very tough to make a negative bet on Consumer Discretionary now."


The solution? Focus on the massive earnings outliers (RL, CROX, PSS, etc…). Importantly, we’re going to see volatility return starting in 2010 as we see the bifurcation between quality (the companies that are investing today to proactively drive results next year) and the junk (those that are cutting too much today and are borrowing from next year).  There will be some big calls (both ways) emerging from the ashes over the next few months.








  • In one of the more detailed characterizations of footwear product costs out of China, the K-Swiss CEO explained that prices for both labor and raw materials have come down dramatically. Interestingly, leather prices recently hit historical lows as a result of slowing auto demand and a recent draught in Argentina. If you’re confused on the draught comment, it basically led to abnormally high levels of slaughters and ultimately a glut of cattle hides. Adding to pricing pressure is the fact that the auto industry accounts for 40% of worldwide leather demand. KSWS and PSS are two of the companies with the highest concentration of footwear manufacturing centered in China. Both will benefit greatly from this dramatic reduction in costs.


  • Flat panel televisions remain one of the most elastic product categories in all of retail. With prices down north of 40% year over year, unit sales at Costco were up 32% in the month. Given the success of “cash for clunkers” and the shear amount of hdtv’s being sold, some might question whether the consumer is really in a slump. On the flip side, food stamp utilization, coupon redemption, and “trading down” all remain key issues facing retailers of consumer staples.


  • In looking at the product categories that stand out for July, trends were essentially unchanged from the prior month. Dresses remain a key positive category across all retail channels. Additionally, casual attire continues to outperform career/dress attire. This should come as no surprise with unemployment at 9.5%. The teen retailers with exposure to earlier back-to-school markets cited strength in denim, although the majority of the selling season is just about to begin. Similar to last month, home related products were mixed, with some retailers reporting strength while others are still seeing weakness.


  • One of the byproducts of tight inventory control is the potential for missed sales. With increasing frequency, retailers are citing negative impact on revenues resulting from substantial declines in year over year clearance inventory. While this dynamic bodes well for margins and profits, we suspect this creates some unwanted noise for those who “play” the comps each month.




-33% of Russian retailers may close up shop before 2010 - 33% of 42,000 retailers in Russia will probably be forced to close down business by year-end, according to the Chief of the European Fashion and Textile Export Council Reinhard Doepfer. It is due to continuous shrinking of consumer spending in the wake of the country's economic was hit by the global financial crisis last year, which has impacted the clothing suppliers in Europe. However, the industry said Doepfer's prediction is too severe and expected the closure figure will be only 10-15%. Germany has seen sales of clothing to Russia taking a dip by 6% in Q1 of 2009 and expects sales to drop further 30% in the forthcoming F/W collection to the country whose GDP decreased 9.8% in Q1 2009. <>


-The Indian government is offering subsidies amounted to $532.5 million to the textile sector for technology upgrade - Textile minister Dayanidhi Maran said it is the first time that such a large amount of subsidies comes from the government, which is part of the Technology Upgradation Fund Scheme (TUFS), which provides preferential loans to help companies invest in new technology. Maran also mentioned a committee has been set up to devise a national fibre policy and will submit its recommendations in three months. In July, India lifted the TUFS fund from $229 million to $661 million as part of the country's budget. <>


-Cambodia expects exports of garments to drop 30% - Cambodia's Ministry of Commerce has estimated that exports of garments will tumble as much as 30% in 2009 which is much higher than the 5% dip anticipated at the beginning of the year. This due to its main market the US of which the clothing market has undergone a recession. Shipments of apparels in the first five months of 2009 amounted to $909 million down by 20% from the same period of the previous year. Close to 80 apparel companies in Cambodia have shut down and another 30 leading manufacturers are also at the edge of closing down. <>


-Coach Inc. has dropped a patent infringement lawsuit it brought against Brown Shoe Co. earlier this year - The suit, filed May 29 in U.S. District Court in Manhattan, accused the retailer’s Naturalizer chain of selling an “exact copy” of the Coach Ergo Pleat handbag, the design of which was patented in 2008. According to a notice filed with the court Tuesday, Coach agreed to a voluntary dismissal. A company spokeswoman confirmed Coach had entered into a settlement agreement with Brown Shoe but said the terms were confidential. <>


-Stein Mart hires former CFO of Kellwood as new CFO - Gregory Kleffner, former chief financial officer of Kellwood Co., has joined Stein Mart Inc. as cfo, effective Aug. 10. He succeeds James Delfs, who is retiring. Prior to joining Kellwood in 2002, Kleffner spent 25 years with Arthur Andersen LLP, most recently as audit and advisory partner in its St. Louis office. “Greg’s strong financial and strategic experience with industry-leading manufacturers and retailers makes him a great addition to our team,” said David Stovall, president and chief executive officer of the Jacksonville, Fla.-based retailer, which operated 273 off-price department stores as of July 4. <>


-France passes Sunday trading bill - More stores in France will be allowed to trade on Sunday after the country’s Constitutional Council gave the green light to a controversial bill Thursday evening. The council deemed the bill, which was ratified by a narrow majority in the Senate last month, was constitutional, but rejected the part that gave Paris’ prefect, not the mayor, the authority to designate areas that should be allowed to trade on Sundays. Instead of allowing all French stores to open on a Sunday, the law restricts the right to a limited number of commercial zones in three cities — Paris, Marseilles and Lille — and a number of tourist areas across the country. <>


-Puma Reports 16% Decline in Profit on Discount Sales of Shoes and Jerseys - Puma AG, Europe’s second-largest sporting goods maker, reported a 16 percent drop in second- quarter profit because of increased discounting and said sales may start to fall in the second half. Puma AG, the world’s third-largest sporting equipment company, reported better-than-expected second-quarter earnings on Friday, but remained cautious about the second half of 2009. Puma, whose main competitors are Nike Inc. and German rival Adidas AG, earlier this year stepped up its ongoing savings program in response to the downturn. The program is targeting savings of 150 million euros, or $215.8 million, in 2010. <>


-CEO Jill Granoff was bullish on the incremental relaunch of Kenneth Cole New York’s ladies’ footwear, which will roll out five styles today. -  KCP is expecting to sell through the entire initial deliveries at full price. The new shoes employ patented 9-2-5 technology borrowed from the Gentle Souls brand, which was acquired by Kenneth Cole four years ago. The first collection using the technology will be sold exclusively in the brand’s own retail stores to “build momentum and drive traffic to our stores before we expand into wholesale distribution next year,” said Granoff. “Our goal [with this line] is ‘no markdown, no promotion.’” However, the CEO said the company does plan to expand price points on the lower end of the spectrum.  <>


-Perry Ellis International has signed a licensing agreement with SG Footwea - Perry Ellis International has signed a licensing agreement with SG Footwear for the design, manufacture and distribution of men’s slippers under the Perry Ellis and Perry Ellis Portfolio names. The debut fall ’09 line will be available in the U.S. and Canada and will be sold through department stores that include Macy’s, Dillard’s and Belk.  In a company release, Bernard Leifer, president and CEO of Hackensack, N.J.-based SG Footwear, said, “We are very excited about partnering with a great brand such as Perry Ellis, one of the most iconic brands in menswear.” He added that the deal offers the company a chance to grow its portfolio of licensed brands in the department store channel. <>


-New Balance is targeting tweens with its new NB Fierce Trax collection, built around its new kids’ 900 running shoe model - Inspired by the cheetah, the 900 features the Boston-based brand’s kids-only N-Grip outsole technology, an aggressive, paw-inspired turf outsole that supplies slip-resistant footing and enhanced traction. In addition, New Balance’s patented N-ergy responsive cushioning technology in the heel provides for a smooth transition and delivers impact force distribution, reducing the number of hot spots in the shoe. The offering is composed of four styles, two boys’ colorways and two girls’ colorways. The girls’ models are detailed with a cheetah print on the upper. Slated to hit stores in January, the NB Fierce Trax shoes, to be packaged in custom shoe boxes, will retail for $55. Going forward, additional shoe models will be added to the collection. <>


-Steven Madden Ltd. has dropped a trademark lawsuit it filed against eBay Inc. two weeks ago - According to court records, the footwear and accessories firm agreed to a voluntary dismissal of the suit Wednesday. Steven Madden had brought the complaint against the online auction house in U.S. District Court in Manhattan on July 21. It accused the e-commerce giant of trademark infringement because unauthorized watches made by former licensee Vestal were allegedly for sale on the site. Steven Madden did not return calls inquiring about the nature of the dismissal. <>


-Sales drop for Blue Nile in the second quarter, but not as fast - Compared to previous quarters, sales didn’t fall as far for online jeweler Blue Nile Inc. in the second quarter. Sales dropped 5.2% in Q2 as net income fell by 12.5%. <>


-Burberry scouts for new partner for fresh Indian partner - Burberry Group, the iconic UK-based luxury retailer, is on the verge of ending its tie-up with the UAE-based Jashanmal Group in India and is instead looking to rope in Indian retailers for a possible tie up, a person close to the development said. Burberry has three stores in the country at Delhi and Bangalore. It had set up its first store in September 2008. Burberry is looking for a new partner for faster roll-outs in the country and, with a new arrangement, Burberry plans to open 20-30 stores across the country in the next couple of years, sources said. The increased focus of the Burberry group on emerging markets like India stems from the fact that, in 2008-09, Burberry achieved 50 per cent of its growth from emerging markets such as the West Asia, China and India. Emerging markets contribute 9 per cent of its sales, up from 6 per cent in 2007-08, the company said in its annual report. Burberry has shown interest in Genesis Colors, the parent of designer labels such as Satya Paul, Deepika Gehani and Samsaara, as the latter moved swiftly in luxury space at a time when others like Murjanis exited the luxury business. Genesis Colors had bought the rights of Bottega Veneta & Jimmy Choo from Murjani group and now have 15 luxury stores in the country. <>


-Jewelry retailer Zale Corp. said Thursday that it closed 118 retail locations in the fiscal fourth quarter due to underperformance - The company has closed 191 locations in the calendar year, including 160 retail stores and 31 kiosks. Zale will also settle some rent obligations for 34 Bailey, Banks & Biddle locations. It is still trying to negotiate agreements for the 11 remaining locations. The closings and Bailey, Banks & Biddle liabilities will result in a fourth-quarter charge of $50 million. Zale has 1,931 retail locations excluding the announced closures. <>


-Small apparel maker files lawsuit against CIT - A small clothing maker called Scherr Inc filed a lawsuit last week against CIT Group, saying that the lender's financial problems and possible bankruptcy are threatening its business. Scherr, based in Livingston, N.J., said in court documents that CIT has not been able to give it the assurances it needs that it will hold up its end of the "factoring agreement" it signed earlier this year. Scherr asked the court to terminate that agreement. In a factoring agreement, the lender buys a client's accounts receivables at a discount, with the discounted amount of each account receivable payable to the client when the full amount is paid by the client's customer. In some cases, if the customer does not pay by a certain date, the lender is committed to paying the client.  <>


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


08/06/2009 03:06 PM


I'll take my medicine and cover this position for a loss on a down day. I'm too early shorting these consumer stocks. Inflation won't be here until Q4. KM




WWW: James Zwiers, Sr VP & President, Outdoor Group, sold 7,000shs ($172k) roughly 12% of total common holdings.

SHOO: John Madden, Director, sold 10,000shs ($332k) after exercising the right to convert options representing a token share of a 2mm share (11%) ownership stake.






Restaurants - What Happened to Business in June?

For QSR operators, we are hitting the peak season for average unit volumes, making it a very difficult time to see sales trends slow.  The nimble operators need to be quick to react to weakening sales trends by cutting labor costs or margins will suffer.  When sales drop off suddenly, it gives operators less time to adjust their business models, thereby putting margins at risk.


We have seen an unprecedented decline in June same-store sales for nearly every restaurant operator.  This can best be seen in the steep decline in McDonald’s sales trends.  In May, MCD reported a 2.8% same-store sales number and it quickly fell off to 1.8% in June, and the company is likely to report 2% in July.


CKR also saw a slowdown in sales in June.  The company reported same-store sales growth of -7.1% and -6.1% at Carl’s Jr. for the four week periods ending June 15 and July 13, respectively.


JACK is another concept that is seeing weakness.  As of May 14, when the company reported fiscal 2Q09, management was pretty bullish about sales trends.  Yesterday, we learned that the company experienced a significant deterioration in sales beginning in mid June, with June coming in down about 4.4%.  Sales have recovered slightly in July to down around 3%.


JACK’s CEO Linda Lang offered the following explanation of why sales slowed so dramatically:


“We saw positive mix on our product promotions, so we really contribute the sales weakness to -- we initially thought it was potentially all of the discounting that was done at the causal dining and bar and grill concepts. However, as we now hear from those concepts that they experienced weakness as well, my theory is that -- and this is just theory, because I am not an economist -- is that we typically see a nice lift in the summer as kids are off of school, as college kids come home and get part-time sales jobs. And we just did not see that typical seasonal lift and I don’t think most of the competitors saw the lift that we would see in June.


If you look at unemployment rates among teenagers, very high at about 24% so they are just not getting those summer jobs and don’t have the discretionary income or spending that they would typically have.”


Restaurants - What Happened to Business in June? - Teen Unemployment


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.