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Raw-sugar prices have surged 86% this year to a 28- year high on concern that a global production shortfall will widen amid a drought in India and rain in Brazil, the two biggest sugar cane producers.  In addition, the global sugar trade is also impacted by European protectionism and subsidized ethanol in Brazil.


While is only a matter of time before Farmers shift back to sugar cane due to higher prices, the damage is done this year. 



Buying Red: SP500 Levels, Refreshed...

Until this market stops leading us to the same place (buy equities on US Dollar up days), I am going to stay with the plan. Buying red.


In the chart below, Andrew Barber and I have outlined where we think the SP500’s pressure points are. In my getting longer today, where could I be wrong? In the immediate term, there is an important TRADE line at 996 that needs to hold (dotted green line). A close below that line puts 976 in play.


Otherwise, the intermediate term TREND is your friend here – and it remains bullish. I have immediate term upside TRADE resistance at a higher-high (which would also be a new closing high for the YTD if we register it) up at 1,018. That’s +1.5% upside from where we are trading here at 3PM EST.


Keep moving out there,



Keith R. McCullough
Chief Executive Officer


Buying Red: SP500 Levels, Refreshed...  - quantsp

Chart of The Week: Bernanke's Black Gold

For the first day of my first trading internship on Wall Street, I wore all black. I didn’t look like Johnny Cash either. This was the all black Canadian men’s suit, fully loaded with the black silk dress shirt. I am married now, and I know better…


Bernanke may as well wear all black on Wednesday. If he panders to the political compromise of Burning The Buck, that is…


Without signaling any change in rhetoric on interest rates, the US Dollar is setting up to retreat to new YTD lows. As the Buck Burns, we will continue to see Reflation’s Rotation (year-over-year deflation morphing into Q4 reported inflation).


We will be holding our Macro Monthly Strategy call on Wednesday to go through our fundamental thoughts on the black stuff that gets marked-to-market globally ever day. The price of West Texas Crude Oil continues to breakout across all 3 of our investment durations (TRADE, TREND, and TAIL – see charts attached).


If Bernanke panders and the Buck breaks down further, watch for him to be wearing the price of a 9 handle on Black Gold come Q4 of 2009.



Keith R. McCullough
Chief Executive Officer

 Chart of The Week: Bernanke's Black Gold - a1


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Following June’s rather significant slowdown across the board, MCD reported July comparable sales growth that improved on a 2-year average basis in each of its geographic segments with global same-store sales up 4.3%.  Relative to my expectations for the month, based on the company’s guidance and 2-year average trends, the 2.6% and 7.2% growth in the U.S. and Europe, respectively, came in strong. 


The U.S. number surprised me somewhat as MCD was lapping a 6.7% number from last year.  The quality of that growth will not be known, however, until we learn more about how margins are trending in the quarter because MCD increased its coffee promotions/giveaways during the month of July.  These types of promotions are most likely helping traffic at the expense of average check and mix. 


 APMEA’s 2.1% comparable sales growth, although better on a sequential basis from June, is reflective of trends that remain weak relative to the segment’s recent performance as China continues to be a drag on results. 


Systemwide sales declined 0.3% in July.  The negative foreign currency impact of 6.5% moderated from the 8% impact in both Q1 and Q2 and should continue to moderate throughout the third quarter and turn positive in Q4. 









10 AUGUST 2009




We continue to see things move and shake in the e-commerce world. Last week Amazon unveiled that along with the Zappos deal they also acquired the domain for ‘clothes.com’ (which Zappos bought for $4.9mm in May of ’08). Clearly, with a price tag of $847mm for $30mm in EBITDA, AMZN has bigger and better plans for the category. Note that 2 weeks prior to the deal, it opened an Outdoor/Sporting Goods store.


At the same time, we see Target draw a line in the sand and state that it will be building and relying on its own ecommerce site, and will stop using Amazon. Target will have rebranded and redesigned the site in time to handle marketing and fulfillment in time for the 2011 holiday season. The seemingly long duration between decision and functionality shows that implementing such a strategy takes a lot more time than most people think.


In the end, this all plays into one of our key industry themes that dot.com assets will escalate in value as the bankruptcy cycle progresses and CEOs realize that they’ve overinvested in wholesale and retail, and underinvested in .com. Valuations for those companies with superior non-retail consumer-direct businesses (WSM, JCG, and even LULU, to name a few) will command a premium as strategic buyers eye both their brands as well as fulfillment assets.



Some Notable Call Outs


  • In addition to the comments on Zappos’ purchase of ‘clothes.com’ in 2008, it’s worth noting that the price paid for the URL was the second most expensive in 2008, behind “fund.com” which sold for $10 million.


  • A couple of weeks ago there was a WSJ article discussing the “Christmas in July” trend. In particular, Sears and Kmart were promoting toys in an effort to boost sales and give consumers a shot at getting their holiday shopping underway a whopping 3-4 months in advance. The whole concept to me seems a bit ridiculous and out of place, especially when seen first-hand. This weekend I witnessed two examples of pushing products well in advance of their intended use. First, I saw red velvet Christmas ribbon stacked high at Costco. It looked very out of place only a few aisles away from beach chairs and pool accessories. Second, I witnessed a huge Halloween candy display at a Wegman’s. Now I realize Halloween is two months before Christmas, but again merchandising bulk candy (cob web display and all) seemed very out of place next to the ketchup, mustard, and relish display! We’ve heard retailers talk about taking earlier shipments with inventory being managed so tightly, but this appears to be borderline laughable. Maybe if it wasn’t 90 degrees and humid it would make more sense.


  • Gap is launching a new denim line this week, aimed at competing with premium denim lines priced at $125-$500. The new line is focused on fit, a key distinction in an effort to be competitive in the crowded designer denim space. Despite an attempt to take share from the higher end designers, the women’s line will top out at $69.50 and the men’s at $88. The product will officially be launched on August 13th although a pop-up shop opened in LA to generate buzz ahead of the national rollout.




-The apparel retail sector seems to be lagging behind signs of recovery in the job market - Amid moderating national job losses and a lowering of the unemployment rate, fashion stores eliminated 15,000 jobs in July, with specialty stores cutting 7,400 positions to employ 1.42 million last month, while department stores cut 7,600 jobs to employ 1.52 million. Retailers, particularly specialty and department stores, have struggled in recent months with weak same-store sales and flagging consumer confidence levels. Shoppers have favored discount retailers during the recession and have tended toward necessity purchases. In the manufacturing sector, textile mills, which produce apparel fabric, cut 2,000 jobs to employ 121,900. Textile product mills, which make home furnishing fabric, eliminated 800 jobs to 125,700. Apparel manufacturers added 1,000 jobs to employ 166,800. <wwd.com/business-news>


-UK Homewear Sales experience 1st improvement in 12 months - Sales of homewares saw their first improvement in 12 months during July, according to the latest edition of the BDO Stoy Hayward High Street Sales Tracker. However, fashion declined steeply, reflecting the fact that consumers were reluctant to buy summer ranges given the unsettled weather. The change of focus towards new full priced lines also had a negative effect, while uncertainty over the swine flu outbreak may have impacted footfall. In other areas, sales of non-fashion items grew modestly. Overall, like-for-like sales across mid-market retailers retreated by 2.5 per cent in July compared to last year.  Homewares: +1.2% After 12 months of uninterrupted decline, homewares like-for-likes rose by 1.2 per cent. This is an excellent outcome, given the real weakness in demand last year did not start until September. Demand was up in most areas, with furniture and textiles the most positive, helped by movement in the housing market as well as generous discounts.  <theretailbulletin.com>


-LaCrosse Footwear made a strategic decision to discontinue END Footwear as a standalone outdoor and running brand - LaCrosse plans to leverage the END platform of innovative lightweight designs into the LaCrosse and Danner product lines and distribution channels for Fall 2010.  The Company does not anticipate incurring material expenses associated with this action. <sportsonesource.com>


-Sperry Top-Sider and Sebago have some milestones to mark this spring - Both are using the important dates;  for Sperry, the company’s 75th anniversary; for Sebago, the 40th anniversary of its iconic Docksides style; to enhance their image, solidify their market share and engage new accounts. At Lexington, Mass.-based Sperry, recognizing the brand’s founding by Paul Sperry in 1935 is a chance to connect with customers by highlighting its heritage, which plays a key part in its consumer positioning. Calling the occasion a “tremendous opportunity to celebrate the lifestyle enjoyed in, on and around the sea,” Sperry President Craig Reingold said that turning 75 “allows us to speak to the authenticity and equity of our classic brand at a time when consumers are embracing quality and trusted companies.” According to Karen Pitts, VP of marketing for Sperry, limited-edition product and retro packaging will be rolled out to allow the brand to partner with key accounts — and raise awareness with customers, or, as Pitts put it, to help them “rekindle their relationship with the brand.” Next February, two styles for men and women — a $75 canvas vulcanized oxford and a $95 double-sole version of Sperry’s flagship Authentic Original boat shoe — will deliver to select retailers, Pitts said. For those styles, the brand also will offer shoe boxes that mimic the originals, with a new anniversary logo that calls out the date.  In addition, an online microsite is under development that will communicate directly to customers, but Sperry also is focused on reaching out to retailers. Pitts said the brand was still in planning mode, but hopes to have in-store displays featuring anniversary-themed items and gift-with-purchase promotions, as well as in-store events and custom programs that “really connect the dots for these smaller independent stores.” <wwd.com/footwear-news>


-Former JJB Sports CEO attempted to take company private - Chris Ronnie, the former JJB Sports chief executive, who was sacked after being held responsible for the retailer’s demise, has claimed executive chairman Sir David Jones considered taking the business private. <www.drapersonline.com>


-The protracted, complicated purchase of Hartmarx is finally a done deal - Emerisque Brands U.K. Ltd. and SKNL North America B.V. breathed a sigh of relief Friday as they completed the acquisition of the assets of bankrupt Hartmarx Corp. And Hartmarx employees, or at least the majority of them, now can look forward to holding onto their jobs. The assets of Hartmarx are now under the newly formed company Hartmarx Operating Co. LLC.  “We are delighted to have completed this acquisition,” said Nitin Kasliwal, chairman of SKNL, who on Friday was named to the same post at the new Hartmarx. “This is an important step forward towards our ambition of being ‘clothiers to the world.’”  <wwd.com/business-news>


-David Conn, previously executive vice president of Iconix Brand Group Inc., has joined VF Corp. as president of VF retail licensed brands - In this new post within the VF Services Inc. subsidiary, Conn will be responsible for “identifying new business opportunities with key retailers under a licensed business model,” VF said. “Partnering with leading retailers is one of the cornerstones of VF’s growth strategy,” said Mike Gannaway, vice president of VF direct-consumer teams. “Beyond our core national brand strategy, we see additional opportunities for growth with key partners through the introduction of new brands under a licensed business model. David brings a unique set of skills, capabilities and brand licensing experience to VF that will prove effective in leading our efforts in this new endeavor.” <wwd.com/business-news>


-Gucci America Inc. battles counterfeiters by attacking their financial backings - Gucci America Inc. took a novel approach to combating knockoffs on the Web last week when it sued three companies it alleges provided trade services to counterfeiters.  The lawsuit, filed Aug. 5 in U.S. District Court in Manhattan, claims that Houston, Tex.-based Woodforest National Bank; Bozeman, Mont.-based Frontline Processing Corp., and Colorado-based Durango Merchant Services all profited by doing business with Laurette Co. Inc., owner of TheBagAddiction.com.  The fashion house won a $5.2 million judgment from Laurette last year after its owners admitted to selling counterfeit Gucci wares. In the new lawsuit, Gucci alleges one or more of the defendants had some part in processing more than $500,000 in bank and credit card payments made to Laurette by its customers. Lawyers for the luxury firm charge the defendants knew Laurette was selling fakes, as they labeled it a “replica” business and “high risk” account. By processing the transactions, the defendants “enjoyed a substantial financial benefit,” the suit alleges.  <wwd.com/business-news>


-Kenneth Cole is tackling a huge hurdle by fusing fashion and comfort that many a fashion brand has attempted - More than 1,500 people lined up outside the firm’s Rockefeller Center store in Manhattan on Friday morning to purchase shoes from the brand’s shoe collection featuring 925 Technology cushion technology incorporating materials such as deerskin, Poron foam, cork and flaxseed. The new styles will be sold exclusively at Kenneth Cole stores until next year, when the company will begin wholesaling the line. Bloomingdale’s chairman and chief executive officer Michael Gould perused the collection alongside Kenneth Cole ceo Jill Granoff, while Cole autographed shoes and took pictures with a long line of fans. Going forward all of the brand’s shoes will feature 925 Technology.  <wwd.com/retail-news>


-Best Buy is best in traffic to computer and consumer electronics sites - Although its traffic declined 19% from a year ago, Best Buy still had more than twice the number of unique visitors in June than its nearest competitor in the computer and consumer electronics category. <internetretailer.com>


-Though retailers are still buying cautiously, their interest in bolder footwear styles is surging - Nine West Creative Director Fred Allard said buyers showed excitement for product in proven silhouettes — from wedges and kitten heels to strappy sandals and peep-toe pumps — and styles with bold design treatments. He said looks with bright leopard and zebra patterns, unique textures and shaped demi-wedge or kitten heels had top billing with retailers. Neon coloring mixed with neutrals — an important color palette for the season — lets the retailer experiment without going too far, said Allard. Prices remain a key issue, he added, and Nine West is aiming to keep opening prices at $49 and limit the peak to $95. <wwd.com/footwear-news>


-EU's Commission Decision reviews and adjusts eco-footwear criteria - EU's Commission Decision has carried out a review of the existing criteria for the community eco-label for footwear and decided to not only modify the definition of the product group but also to establish new criteria. The new Decision emphasizes that the product group "footwear" comprises all articles of clothing designed to protect or cover the foot, with a fixed outer sole which comes into contact with the ground. Moreover, in order to fall within this product group, footwear shall not contain any electric or electronic components. In order to be awarded the Community ecolabel, footwear must comply with the criteria set out in the Annex to the new Decision.  <fashionnetasia.com>


-Japan's Merchant Sentiment Reaches 22-Month High on Stimulus Optimism - Confidence among Japanese merchants rose to a 22-month high in July, adding to signs that the world’s second-largest economy is heading for a recovery. <bloomberg.com>


-After multiple garment factory closures, Nigerian Union demands government assistance - Nigeria's National Union of Textile Garment and Tailoring Workers of Nigeria (NUTGTWN) has urged the government to revive the industry in the wake of continuous closures of factories over the last twelve months. The Secretary General of NUTGTWN, Mr Aremu said that smuggling of goods is rampant in the country and have now dislodged the industrial sector by taking away the space for manufacturing. He said that the textile revival fund had been announced more than five years ago and apart from raising the quantum of the fund from N70 billion to N100 billion, nothing concrete has been achieved. <fashionnetasia.com>


-Angola seeks aid from Japan and other countries to revive its textile industry - The Industry Ministry in Angola is in discussion with various countries, mainly with Japan, to revive the textile industry, according to the country's Deputy Minister Kiala Gabriel. Some concrete proposals are being negotiated with Japan and will be analyzed and approved by the government. In view of the current economic situation, the government has initiated an Executive Recovery Program for the industrial sector for the period 2009-12 which is a document to revive different sectors, said Gabriel. Recovery of at least three textile factories, such as Africa Textile and Satec in Benguela province and Textang II in Luanda will be made possible through this program. The government is also planning to build three factories in the period of 2009-12 to gin cotton in the provinces of Malange, Benguela and Kwanza Sul and one more in Benguela. <fashionnetasia.com>




 Is it time to revisit Sketchers as a short? Probably not yet, as numbers seem doable. But Sterne Agee upgraded it this morning. Check out the historical chart below.









Michelle Leder of Footneted.org highlighted a PNRA filing last Friday.  Interesting new disclosure in PNRA Q filed LATE Friday that has something happening TODAY.   Says outcome could potentially be material, but it’s probably not big deal. 


The following is the key part of the filing:


“On January 25, 2008 and February 26, 2008, purported class action lawsuits were filed against us and three of our current or former executive officers by the Western Washington Laborers-Employers Pension Trust and by Sue Trachet, respectively, on behalf of investors who purchased our common stock during the period between November 1, 2005 and July 26, 2006. Both lawsuits were filed in the United States District Court for the Eastern District of Missouri, St. Louis Division. Each complaint alleges that we and the other defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule 10b-5 under the Exchange Act in connection with our disclosure of system-wide sales and earnings guidance during the period from November 1, 2005 through July 26, 2006. Each complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, costs and expenses, including attorneys’ and experts’ fees, and such other relief as the court might find just and proper. On June 23, 2008, the lawsuits were consolidated and the Western Washington Laborers-Employers Pension Trust was appointed lead plaintiff in the lawsuit. On August 7, 2008, the plaintiffs filed an amended complaint, which extended the class period to November 1, 2005 through July 26, 2007. We believe we and the other defendants have meritorious defenses to each of the claims in the lawsuit and we are prepared to vigorously defend the lawsuit. On October 6, 2008, we filed a motion to dismiss all of the claims in the lawsuit. On November 20, 2008, the plaintiffs filed an opposition to our motion to dismiss, and on December 3, 2008, we filed a reply memorandum in support of our motion to dismiss. On June 25, 2009, the Court converted our motion to one for summary judgment and denied it without prejudice. The Court simultaneously gave us until July 20, 2009 to file a new motion for summary judgment, which deadline the Court subsequently extended until August 10, 2009. There can be no assurance that we will be successful, and an adverse resolution of the lawsuit could have a material adverse effect on our consolidated financial position and results of operations in the period in which the lawsuit is resolved. We are not presently able to reasonably estimate potential losses, if any, related to the lawsuit and as such, have not recorded a liability in our Consolidated Balance Sheets.” 

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