Stanley Ho is recovering, according to a report citing his third wife published in the Chinese-language newspaper, Apple Daily.  Ho’s wife, Chan Un Chan, visited the hospital yesterday and responded with “yes” when asked if his condition was better. 

Ho’s spokesman also labeled any speculation that the casino mogul had suffered a stroke and was immobile as being “unfounded”.



Thirty-seven more cases of A (H1N1) flue were announced on Sunday by the Health Bureau, bringing the total number of cases to 394.   The spread of the virus is still considered moderate and there have been no fatal cases.



More than ten senior police officers have been detained on suspicion of being connected with crime gangs in Chongqing.  Many of these crime gangs have set up loan-sharking operations in Macau, preying on Chongqing businessmen going to Macau for vacations.  Police have said Chongqing loansharks held 30 billion yuan (HK$34 billion) in extortionist loans.  The Chairman of Chongqing Municipal Private Business Association, Huang Wei, remarked that, “At least half of these loans” were made in Macau.


Malcolm Knapp reported that July casual dining same-store sales declined 8.4% with traffic -7.7%.  For the third consecutive month, comparable guest count results were better than sales, which points to the significant discounting in the industry. 


Sales trends have worsened on a sequential basis throughout the year.  After somewhat of a rebound in sales following the difficult 4Q08, sales have now fallen to a level that is not much better than December.  On a two-year basis, July comparable sales are down 6.2%, only 60 bps better than December and traffic is down 7.0%, improving 90 bps from December.


It is going to be increasingly more difficult for restaurant operators to maintain margins in this sales environment as they can’t maintain their current pace of cost cutting and will soon be lapping the initial implementation of these cost saving initiatives.


Please call or email me for more details.




17 AUGUST 2009




  • ANF is looking to invest in growth almost exclusively outside of the US while likely downsizing the domestic store base in a meaningful way.  On its 2Q conference call, management made it clear that the domestic market is now mature (Author’s note: thanks for that insight, ANF).  In the near term, they are trimming capex to $185m from $200m.  270 of 987 total stores have leases coming due between now and 2010, which will give the company a chance to downsize and cut losses on unprofitable locations.  This puts ANF in the “cutting to buy time” camp.


  • For the first time in a while, we heard there may be some signs that pent-up demand is creeping into shopping patterns.  On JCP’s 2Q conference call, management expressed there are some signs that the consumer is entering a replenishment cycle after cutting back apparel purchases over the past year.  The comments also included some early color on back to school, which suggested the season is off to a decent start.  Management also cautioned that it is only 10 days into the back to school period and too early to be overly optimistic.


  • Sitting with $1bln in buying power, Asian sourcing powerhouse, Li & Fung, is looking to make acquisitions.  The company is focused on targets in the U.S. and Europe and has its eye on the HBA sector.  The company also expects that “big” acquisitions will come at the end of this year or beginning of next year.  That synchs with our view that a short-term cash flow pop will delay major M&A activity in this space for another 4-6 months (i.e. that’s when more companies will HAVE TO sell).


  • URBN’s management team made it clear the company has not sacrificed any investment in the company’s growth initiatives over the past year. After pointing out there have been no layoffs at the company despite the challenging environment, the CEO highlighted ongoing investments which include: a joint venture with an Asian buying agent, enhanced functionality of the ecommerce platform, a new mobile site, investments in social media marketing, a 50% capacity increase in the East Coast distribution center, and development of European infrastructure to support aggressive growth in the near future. The company announced that it expects there could 100+ stores in Europe between the two main brands.  This is the most defined and aggressive view we have heard on non-US growth from URBN.


  • On the surface it appears that KSS’ store growth of 20-25 stores for next year seems very conservative given the company’s aggressive push to open 59 stores this year, including the strategic acquisition of former Mervyn’s location in CA and the Southwest. However, when pressed on the topic management explained that it sees many opportunities materializing over the next 12-18 months and the company will be aggressive in using its balance sheet to pursue market share opportunities through displaced real estate.


  • Opposite KSS, is JC Penney’s view that the real estate market is stressed and it’s better to remain conservative at this time.  The company plans to open 5 stores next year and plans to continue investing primarily in remodels.  Capex will decline again next year, going to $400m from $600m.  The company does not appear to be adopting an opportunistic real estate strategy despite expressing confidence in its off-mall stores.


  • Nordstrom is opportunistically taking advantage of the real estate environment and value conscious consumer with a slightly more aggressive store growth plan for its Rack concept. There are now plans to open 13 stores this year vs. a prior plan for 10. There is also a plan for 12 units in 2010, with a few additional locations to be added soon. Management noted that closures from Linens N’ Things and Circuit City have provided opportunities for new Rack locations.


  • After taking a more bearish view on the 2Q in mid-June when the company announced its convertible offering, LIZ announced an additional $100mm in cost reductions this week based on their 2H outlook. While several mid-tier retailers have suggested that promotional discounting will be no worse than last year based on significantly improved inventory levels, CEO McComb continues to believe that markdowns will be a major issue again this holiday season as the means by which department stores will drive traffic. That said, we met with him several weeks ago, and believe that the direction of LIZ’ financials are inflecting.


  • Capex at WMT is beginning to show signs of picking up from the bottom. Almost all the growth is coming outside of the US which is the only place left to expand. Also some step up in a worldwide systems initiative to create common platforms. With fairly stable US results and inventory productivity still improving, it appears that cash flow is getting a slightly higher allocation towards non-US growth. 


  • Warnaco opened 43 new retail locations in the 2Q, significantly more than expected. With International sales +8% in the 2Q helping to offset domestic weakness and a long runway for international retail growth north of 20% over the next 3yrs, we wouldn’t be surprised if the company accelerates its growth plans further before year end.  


  • Macy’s indicated it is seeing benefits from cost savings and consolidation efforts materialize faster than originally excepted.  They are also shifting marketing dollars out of 2Q/3Q and into 4Q.  All of these moves amount to defense in an effort to make/exceed expectations.  Capex is still muted here at $400m vs. a normalized run rate of $800m. 




-Shoemaker Skins Footwear Inc (SKNN.OB) filed for Chapter 7 bankruptcy - Skins cited assets of less than $50,000 and liabilities of between $10 million and $50 million, according to court documents filed on Friday in federal bankruptcy court in Delaware. The New Jersey-based company makes shoes with a two-part structure consisting of an outer collapsible, interchangeable shell called its "skin," and an inner orthopedic support section called the "bone."  <>


-Four Asian manufacturers filed an involuntary Chapter 7 petition against Ellen Tracy seeking to liquidate the company - The filing was made on Friday in Manhattan bankruptcy court. The four petitioners are: Shanghai K&J Apparel Co. Ltd., Shanghai, which owed $1.5 million; Chinamine Trading, Kowloon, Hong Kong, $676,000; Excellent Jade Ltd., Kwai Chung, New Territories, Hong Kong, $1.2 million, and Shanghai Mandarin Fashion Ltd., Shanghai, $432,000. Kenneth Rosen of Lowenstein Sandler in Rosalind, N.J., who represents the petitioners, said Ellen Tracy has 20 days to respond to the filing. He said the filing was necessary and called it an “alternative of last resort” because the debts were “substantially” overdue. Rosen also said he is seeking to have a bankruptcy trustee “investigate what happened to the Ellen Tracy license,” referring to the one in existence before RVC came into the picture. Fashionology Group, which is winding down its manufacturing business, last month sold the operational division of Ellen Tracy to RVC Enterprises. RVC was given the license for use of the Ellen Tracy brand for women’s sportswear in both the better and bridge categories. RVC is said to be in talks with several chains, including Macy’s, Dillard’s and Lord & Taylor. <>


-Kmart is launching a new apparel brand, Thre3 by the U.S. Polo Assoc., in time for the back-to-school selling season - The collection for women, men, girls and boys consists of jeans, sweaters, rugby shirts, polo shirts, woven shirts, fleece, zip pocket hoodies, French terry blazers and twill trousers. Prices range from $9.99 for children’s graphic T-shirts and women’s tops to $24.99 for women’s signature boot-cut jeans. Jordache Ltd. is responsible for designing, manufacturing and other creative aspects of Thre3. The U.S. Polo Assoc. is a division of Jordache. Four deliveries a year are planned. Thre3 apparel is preppy, designed with the elite sport’s classic iconography in mind. Thre3 seems to be taking a page from American Living, the collection sold at J.C. Penney designed by the Global Brand Concepts unit of Polo Ralph Lauren Inc., and Lauren’s Chaps, which is exclusive to Kohl’s. The Thre3 opening page on the Kmart Web site shows two neatly scrubbed men wearing khakis and jeans with polo shirts and two All-American women in twill pants with a polo and a woven blouse with ruffles. The Thre3 logo features an American flag and says, “Confident, iconic American style brought to you by the U.S. Polo Assoc.” <>


-UK Clothing and footwear sales in London fell back during July as the wet weather during the month drove sales of indoor items such as homewares and furniture - Total retail sales in London during the month grew 2.2% on a like-for-like basis, according to the British Retail Consortium (BRC)-KPMG London Retail Sales Monitor. The figure compares with a 5.8% like-for-like increase in sales during the same month a year ago. Footfall in July dropped below its year earlier level, hit by the wettest July on record and the end of Sale periods. In July, the capital benefitted from overseas visitors cashing in on the weakness of the pound against the euro. London outperformed the rest of the UK, which notched up a 1.8% increase in like-for-like sales during July, by the narrowest margin for nine months. <>


-Japan has officially emerged from the recession in the second quarter - Japan’s gross domestic product increased 0.9% in April-June from the previous quarter, expanding at an annualized rate of 3.7% and growing for the first time in five quarters, the country’s Cabinet Office said. The figure came in slightly lower than economists’ expectations for 1% quarterly growth and 3.9% annualized growth. Last week, data from France and Germany showed that both of those countries have also emerged from recession, defined as two consecutive quarters of economic contraction.  <>


-The waiting continues in the hard-hit contemporary retail market - While merchants wait for the next big trend that will spur consumers to get over their reluctance to buy, the finance executives in the back office struggle to pay bills and keep credit flowing. As a result, many of their vendors are waiting for payment as well. The result has been sharp sales declines for stores and an increasingly complex credit picture for their suppliers. And the pressure appears to be building on retailers in the sector, from Intermix to Barneys New York’s Co-op, Calypso to Scoop. Barneys New York had problems with factors not approving credit in the past year, in part because of a lack of financial information from its Dubai-based owner Istithmar, which ultimately gave the chain a $25 million cash infusion. Neiman Marcus Group, owned by private equity firms TPG and Warburg Pincus, has also been hurt by sagging sales, and factors tightened credit earlier this year. The concern surrounding Neiman seems to have eased a bit, so there’s little concern now about its contemporary Cusp concept.  <>


-Walmart to Sell Kiss's First New Music in 11 Years in Exclusive Agreement - Wal-Mart Stores Inc., the world’s largest retailer, will offer a $12 CD set with rock band Kiss’s first new music in 11 years, and plans to expand into other merchandise licensed by the group. <>


-H&M reports July sales figures - Comp trends getting sequentially better since -9% May, -5% June, and now -3% July.  Sales figures are accelerating as well since 0% May, 4% June, and 7% July. 








 JOEZ: Suhail Rizvi, Director, sold ~162,000shs ($114k) for R-2 Group Holdings as the Managing Member of the LLC


NILE: Susan Bell, Senior VP, sold 3,500shs ($189k) after acquiring the right to buy 3,500 options.


ANN: Christine Beauchamp, President, AnnTaylor Stores, sold 3,457shs ($41k) less than 5% of common holdings.


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Focusing The Mind

“Sharp downward movements do that… they focus the mind, like a good hanging used to do in the Old West.”
-Judge Roy Bean
Despite Friday’s US equity market selloff coming on one of the lower volume days of the month, this morning’s follow through selling in Asia and Europe has us focusing the mind…
Last week’s catalyst of Bernanke pandering is now in the rear-view. Today’s risk management task is to look forward. Now you are seeing a US Dollar strengthen in international currency trading. Almost every time that happens, you’ll see weakness in everything priced in dollars. Commodities are trading lower right now, as are US stock market futures. This shouldn’t be a surprise.
The manic media will be looking to build a narrative around the weakness in the US futures. I’ve already heard “Japanese GDP being lower than expected” at least half a dozen times since I woke up. For one, I am short Japan (via the EWJ etf) so I have every reason to support this view – but the reality is that it’s a ridiculous reason to explain away all that’s changed in the last 48 hours of global macro market news-flow.
Contrary to what you may be hearing parroted around the Street, I thought the economic news out of both Japan (+3.7% Q2 GDP) and Singapore (-8.5% non-oil exports) were more positive than negative. I thought the foreign direct investment drop in China (-36%) was more negative than positive. I am long China and short Japan. I have no room to infuse my personal confirmation bias into these economic read-throughs. They are what they are - no matter what my positioning.
If you wake up every morning looking for data points to support your portfolio’s positioning, you are probably not going to be a winner in this game over the long term. If you wake up chasing the SP500 to a new YTD high on Thursday (1,012), and scrambling to make sales this morning down at another higher-low (989) you are just going to frustrate yourself and your clients.
Have your own investment process. Make it malleable and repeatable. Buy low; sell high.
On Thursday, I sold my Freeport McMoran (FCX) and Southern Copper (PCU), then I shorted Apple (AAPL). Why? when everyone is chasing things in this tape, you have to find a way to focus your mind and book gains. You also have to be able to short other people’s hopes. You have to have the ability to maintain opposing thoughts in your mind and still fade the market. You have to find ways to win.
On Dollar down days, the Bankers, Debtors, and Politicians get paid – meanwhile American commoners and the Chinese government get plugged. One of the main reasons why the US stock market failed to make a higher-high on Friday was just that. The US Consumer gets this trade – he isn’t stupid. Friday’s Michigan Consumer Confidence reading flashed another lower-high, catching those who don’t get what the American consumer does off-sides.
This morning’s USA TODAY/Gallup Poll reveals that, “57% of adults say the stimulus package is having no impact on the economy or making it worse… 60% doubt that the stimulus plan will help the economy in the years ahead… 18% say it has done anything to help improve their personal situation…”…
As the US Dollar tested new YTD lows last week, the US stock market made new YTD highs. All the while, Chinese stocks started to fall. Again, this makes sense  - if you believe me that the Chinese don’t like this US Dollar Devaluation any more than the American Saver does.
Last night, the Chinese stock market got hammered, trading down another -5.8%. Since it peaked on August the 4th at 3,471, the Shanghai Composite has seen a -17% correction. Never mind a correction – for a country, that’s a crash!
So what to do here this morning? Run around like chickens with our heads cut off yelping for bananas? Uh, no – chickens don’t eat bananas. Let’s just take a deep breath, and remind ourselves that the Buck can start to Burn again just as quickly as it stopped going down. This remains the global macro trade that continues to matter. It won’t forever – but until forever comes, don’t fight it – capitalize on it.
I have immediate term TRADE downside support levels for the SP500 and Nasdaq at 989 and 1,965, respectively. Immediate term TRADE upside resistance for both US indices  is now 1,015 (SP500) and 2,019 (Nasdaq).
Best of luck out there this week,


XLK – SPDR Technology Tech and Healthcare remain the two sectors most primed for accelerating M&A activity in Q4. Both look great from an intermediate term TREND perspective, but at a price.

EWC – iShares Canada We bought Canada on 8/11 ahead of Bernanke’s pandering. Canada has what THE client (China) needs, namely commodities, which we believe will reflate as the buck burns.   

USO – Oil FundWe bought USO on 8/10. With Bernanke as the catalyst for the USD breaking down we want to be long oil.

QQQQ – PowerShares NASDAQ 100 We bought Qs on 8/10 to be long the US market. The index includes companies with better balance sheets that don’t need as much financial leverage.

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.  

EWG – iShares Germany Chancellor Merkel has shown leadership in the economic downturn, from a measured stimulus package and budget balance to timely incentives such as the auto rebate program. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; factory orders and production as well as business and consumer confidence have seen a steady rise over the last months, while internal demand appears to be improving with the low CPI/interest rate environment bolstering consumer spending. We expect slow but steady economic improvement for Europe’s largest economy, which posted a positive Q2 GDP number.

XLV– SPDR Healthcare Healthcare has lagged the market as investors chase beta.  With consumer confidence down and the reform dialogue turning negative we like the re-entry point here.

CAF – Morgan Stanley China Fund A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

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.

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. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

GLD – SPDR Gold - 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.

VXX – iPath VIX
As the market rolled over and volatility spiked, we shorted the VXX on 8/13.

UUP – U.S. Dollar Index We believe that the US Dollar is a leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the US dollar.

DIA  – Diamonds Trust- We shorted the financial geared Dow on 7/10 and 8/3.

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.

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.


THE WEEK AHEAD: August 17-21


The Week of the 17th through the 21st had fewer major economic data releases scheduled than the prior two weeks, but there is still a tremendous amount to digest. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


Sunday/Monday August 17


US: The August Empire State index will be released on Monday morning, as will Treasury Department Net Foreign Securities Purchases for June.


Europe: The Eurostat Eurozone Trade Balance figures for June will be released as will June Retail Sales for Switzerland.


Asia: Japanese Q2 GDP data will be released on Sunday evening. On Monday morning Singapore July Export data will be released, while in the evening the RBA August meeting notes will be released giving greater insight into the mindset of Governor Steven’s and his team.


Tuesday August 18


US: PPI data for July will be released at 8:30 am on Tuesday as will Census Bureau Housing Starts, Building permit and Housing Completion figures for July. Weekly ICSC, Redbook and ABC Consumer Comfort index data will also be released.


Europe: UK CPI and Retail Prices data for July will be released on Tuesday morning, as will August ZEW sentiment indices in Germany.  


Asia: Hong Kong Unemployment rate data for July will be released on Tuesday morning.  On Tuesday evening, RBA Assistant Governor Edey will be speaking on the impact of the global financial crisis on the Australian Financial Services Industry.


Wednesday August 19


US:  Weekly MBA Mortgage application data will be released on Wednesday morning, as will EIA oil gas and distillate stock levels.


Europe: The minutes from the BOE August 5-6 monetary policy meeting will be released on Wednesday morning. German PPI data for July is also slated for released on Wednesday: a data point which, although stale, is of key interest to us as we follow industrial recovery in the largest European economy. Eurozone Current Account data for June will be released on Wednesday by the ECB.


Asia:  Malaysian CPI data  for July is due on Wednesday morning, with consensus estimates at just shy of -2.5% Y/Y, any surprise to the upside in this commodity driven economy will be of intense interest to any South East Asia inflation watchers.


Thursday August 20


US:  the Confidence Board Leading Indicator index for July will be published at 10 AM, while weekly Initial Claims, EIA Natural Gas Stock and Fed M2 figures will be also be released through the day at their normal times. At 11 AM, the Treasury will announce 2, 5 and 7 year notes.


Europe: A slew of data points will be released in the UK on Thursday morning including July Retail Sales, M4 and CML Mortgage Lending. Also that morning, Norway will release Q2 GDP.


Asia:  The big story in Asia on the 20th will be reported Q2 GDP and Current Account data for Taiwan. With the country reeling from the destructive Typhoon, it is likely that government policy makers will use this release as an opportunity to discuss further strengthening of  trade ties with the mainland as the recovery process continues after this setback. Weekly Indian Wholesale Price Index data is reported on Thursday, with levels still registering stubbornly negative in recent weeks there will be continued scrutiny of the figures by RBI watchers. Also on Thursday, Hong Kong will release CPI levels for June.


Friday August 21


US: July Existing Home Sales will be released at 10 AM. Also at 10 AM, Chairman Bernanke will speak at Jackson Hole on “Reflections of a Year in Crisis”. Expect any statements by “the bearded one” that sound remotely self congratulatory to stoke more pundit criticism for perceived Fed failures. There will be a subsequent fed panel discussion on policy implementation in the afternoon.


Europe:  Reuters August PMI data for the Eurozone in aggregate as well as Germany and France in particular will be released on Friday morning. With the recent signals of returning strength in the German and French economies we will be focused on any signals contained in the Manufacturing and, or Services index levels.


We've got some more color on the sequential decline in participation units, the Haddrill contract amendment, and other tidbits.



- Hadrill’s new contract:

  • He was originally brought in to “turn around” the Company. Now the board wants him to focus on strategic initiatives and growing BYI
  • Compensation structure was changed to align his incentives to focus on creating “longer term value” and getting him paid in case the company gets bought out before he sees the fruits of his labor. Hmmmm....
  • You know our thoughts here (see the Footnoted post, "BYI: WHY THE NEW HADDRILL CONTRACT?" from 8/13/09)


- WAP/LAP installed base decreased in the quarter and over the last few quarters because the company hasn’t released new content in quite a while.  Over the last few months they’ve issued several new titles to go on their Millionaire 7’s and Quarter Millionaire platforms.  Management believes that over time the base of WAP/ LAP games should increase. 


- Daily & Rental Fee games decrease

  • Mostly in low fee rental & daily fee games, many of which got converted to for sale or weren’t earning enough to make it worthwhile to keep out there.  Based on our estimate these types of games contribute an immaterial amount to the gaming operations business
  • We estimate that there are roughly 6,500 “premium” rental & daily fee games earning on average $50/day, 2000 Seminole games (in a sale leaseback type arrangement) earning around $20-25/ day, and the balance earn around $10/ day


- Increase in Centrally Determined games was driven by Mexico & Washington


- Decrease in deferred revenue:

  • Management is trying to be more cognizant not to “bundle” systems and slot sales to avoid unnecessary deferral of revenues
  • A large portion of system sales are “add on” products to existing system which aren’t subject to deferral accounting since deferral revenues are more often associated with new system sales


- Apparently, management’s ommission of quarterly detail was accidental

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%