Revenue figures for the first eighteen days of August have shown that the Macau gaming market is on track to break its record month of January 2008, when it earned MOP10.4 billion, according to DM.  Ominously, however, the Liaison Office of the Central Government’s Zhuhai branch has reportedly set up a special division to monitor the link between the mainland’s fiscal stimulus program and gaming revenues in Macau.

DM sees the VIP customers as being the likely target of any action by Beijing; they are most responsible for bringing all those revenues to Macau.  The junket business is ferociously competitive and constantly evolves as political and economic winds change.  DM believes that the current environment is working favorably for the junkets and their ability to extend credit and keep business coming to their VIP rooms.  However, it certainly won’t last forever, which is all the more reason for junket operators to take full advantage of the current credit splurge. 

Upcoming events in China that are worth keeping in mind include: the 60th anniversary of modern China on October 1 and the 10th anniversary of Macau’s return to the motherland on December 23rd (also the day when the new chief executive takes office).  DM believes Beijing will allow some time for the new CE to settle in, and for these big parties to pass, before any possible tweaking of visa restrictions.




In light of Dr. Stanley Ho’s illness, rumors are surging through various media outlets guessing what his condition is and who, if needed, will replace him.  Many family members will be involved in any future debate over Ho’s assets.

It is more likely that they would fight over control of STDM, and therefore SJM, than over money.  Controlling STDM is about power and influence; it is a relatively minor component of Dr. Ho’s financial empire.  Pansy and Lawrence, the two most likely successors, are both already concessionaires in Macau and will not be allowed, by law, to take over STDM while maintaining their current positions.  DM believes that Pansy could get bought out of MGM or Lawrence Ho could possible try to merge Melco-Crown and SJM, (seen as his position with Melco-Crown is valuable given the company’s land and VIP market share).  

There is a lack of legislation in Macau to cover any of these scenarios, which is why Fernando Chui Sai-on has a difficult job ahead should Dr. Ho not recover.




Analysts have recently published bullish reports on Singapore’s potential as a gaming market, with estimates suggesting that its two casinos would be able to generate about US$3 billion in winnings per year.  That would be just under 25% of Macau’s thirty-two properties’ revenue in the twelve months to June 2009 and just over half of the US$5.66 billion that forty-one casinos, slot halls, and bingo parlors on the Las Vegas Strip generated in the same period. 

At nearly US$6 billion each, the Marina Bay Sands and the Resorts World Sentosa will be two of the world’s three most expensive casinos (after MGM’s CityCenter at US$9 billion). 




The biggest shareholder of Wynn Resorts is now Kazuo Okada’s Japanese pachinko operator Aruze.  Mr. Okada now owns 19.9% of the company. Chairman and chief executive Steve Wynn now owns 18% of the company after selling down two million shares at US$57 per share to raise US$114 million in cash. 

The Wynns are getting divorced and, according to a statement from the company, “the shares were sold to provide liquidity in anticipation of the change in their marital status”. 




The Macao Daily reported that discussions between the Chairman of the Macau Tourism Council, Wu King Kong, and local tourism agencies  have indicated that Guangdong will relax travel restrictions to Macau to once per month starting on September 1.




Filipino and Indonesian maids in Macau are campaigning against a bill that would ban them from the city for six months if their contracts are terminated.  The bill also features a levy on employers of all imported workers.  Lawmakers will debate the bill in the next few months.



Crash Callers

“Only the wisest and stupidest of men never change.”
This has been a fascinating, yet consistent, week. As sure as the sun rises in the east, you’re going to continue to see the market’s CNBC meme machine freak-out whenever we see a downtick. This glaring groupthink remains the asset for domestic bulls and, importantly, it went global this week with China.
Today, the crash callers of everything they missed (or trying to sell bearish books on) are staring at the 3rd consecutive up day for the US stock market, and a straight up 2-day move in Chinese equities.
One of our best risk managers at the firm, Andrew Barber, wrote a thought inspiring Chinese sentiment piece yesterday. I won’t regurgitate that this morning, but I will show in his Chinese river card. China closed up +1.7% last night, taking its two-day “shame on you for doubting us” rally to +6.2%. For all of those out there keeping score on gold medal performance: the Shanghai Composite Index is +62.6% YTD (-14.7% off its highs) while the SP500 is +11.5% (-0.49% off its highs).
This business has a sneaky way of making the “smartest” of Wall Street savants look silly. It’s a good thing no one ever accused me of being “smart”! That’s what the sell side gets paid to call their clients. I’m just another ex-hockey player grinding it out here on the early shift with my team.
Grinding works. So we’re going to stick with the game plan. As the US government Burns The Buck, everything priced in those bucks is going to continue to reflate. Erik Shatzker (Bloomberg), who I think is one of the most analytical synthesizers of everything global macro, asked me yesterday if this can continue to persist. I said, simple is as simple does. And with the US Dollar down again yesterday, yet again US stocks were up.
The only thing more dangerous than taking financial advice from a Canadian hockey player (or in Erik’s case Canadian media mogul), is taking it from guys who can do math and say “eh” at the same time! As the math changes, I do. I may not be the wisest or the stupidest risk manager in this market, but through trial and error at least you can depend on me to change.
Back to the Burning Buck (which is down another -0.47% this morning and threatening to break down through a critical level of support), you can depend on Ben Bernanke not changing this morning in Jackson Hole. At 10AM EST, he’ll pander. That’s what global currency traders are betting on, and I think they’ll be right.
As Bernanke panders to the most politicized monetary policy this country has ever seen, the Buck will Burn. For all you weekend warrior crash callers, take a look at this one: USD down -12.5% now since March – for the “world’s reserve currency”, now that’s a crash!
Of course, nothing draws a crowd to this business like something in the rear-view mirror. This morning we can add 2 more highly visible US based market economists to our year long Breaking/Burning The Buck Macro Theme: Mohammed El-Erian (PIMCO) and Joseph Stiglitz (Columbia University). Here’s what they said:
1.       El-Erian: “The question is not whether the dollar will weaken over time, but how it will weaken… The real risk is that you will get a disorderly decline.”
2.       Stiglitz: “The current reserve system is in the process of fraying… the dollar is not a good store of value. Right now, the dollar is yielding almost no return and yet anybody looking at the dollar has to say there’s a high degree of risk.”
So now the crash callers can’t ignore this. All in the same week, we’ve had Buffett, PIMCO, and Stiglitz come out explicitly with our call of The New Reality. In the immediate term, this will continue to be bullish for anything priced in dollars. In the intermediate term (3 months or less) consensus will morph into concern (inflation). In the long term, “King Dollar” will be dead.
No, I don’t mean dead, like going away dead. I mean dead as in being so dominant as the owner of the world economic debate. A strategy of creating limitless credit at the sign of every economic downturn in our home currency is over. Don’t freak out about it, just understand it, and deal with it.
Come Q4, Bernanke’s financial forecasting fallacies will be You Tubed for the umpteenth time. When he speaks in Jackson Hole this morning, think back to what he thought he saw coming down the pike at this same Federal Reserve retreat in August of last year. It’s professionally embarrassing. Even Main Street America gets this now – it’s time President Obama does too. Time to change, big man.

In the ABC/Washington Post poll this morning,  “49 percent now express confidence that Obama will make the right decisions for the country, down from 60% at the 100-day mark in his presidency… 49% now say they think he will be able to spearhead significant improvements in the system, down nearly 20% from before he took office…”

Americans aren’t all the wisest or the stupidest. As the Buck Burns, the Bankers, Debtors, and Politicians get paid. Americans don’t. And as the stock US stock market tests new year-to-date highs this morning, we’ll all just have to sit back and think about that…
I have immediate term TRADE resistance for the SP500 at 1,019… what was yesterday’s resistance now becomes your support. That line is 999.
Have a great weekend with your families,


EWZ – iShares Brazil President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt –leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. Brazil is a major producer of commodities. We believe the country’s profile matches up well with our reflation call.

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. Canada has what THE client (China) needs, namely commodities, which we believe will reflate as the buck burns.   

QQQQ – PowerShares NASDAQ 100 We bought Qs on 8/10 and 8/17 to be long the US market. The index includes companies with better balance sheets that don’t need as much financial leverage.

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.

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



    21 AUGUST 2009




  • DKS has shifted gears a bit and now appears to be moving towards an offensive stance after spending a bit of time on defense. With better than planned sales and earnings, management’s confidence is showing through to strategic investment in the business. Store growth is accelerating with the purchase of several former Joe’s stores in the Northwest (probably a few more to come as well), a resumption in IT spend on a marketing/merchandising system that was originally scrapped for this year, taking e-commerce in house, and opening a new consolidated headquarters in early ’10 are all signs that the company is positioning itself for a pickup in growth over the next couple of years. Additionally, gross margin compares ease substantially over the next couple of quarters exactly at the same time clearance of stale Golf Galaxy product begins to wind down.

  • It is no surprise that Ross Stores’ second concept, DD’s Discount, is doing well as a result of the lower-income consumer seeking value. Recall that this brand was put on a hold a couple of years ago while the company revisited it’s approach to building the DD’s chain. Fast forward to a weak economy and a growing glut of real estate and management is now talking about a 500 store potential for the concept.

  • GPS is either increasingly confident in its merchandising changes or spending a little more to try and reverse its negative same store sales trends. Plans for 3Q now include a $25 million incremental commitment to advertising, which is expected to be split evenly between Gap and Old Navy. The bulk of the spending will be directed towards print but the company will also add radio (which is new for the current campaigns). When asked if Gap brand will resume TV advertising in 4Q, the response was muted. Management expects to make a decision about TV in the next couple of weeks. On the margin, this is more positive response than last quarter, when management responded by saying there would be no TV until the merchandise was showing more sustained signs of improvement.

  • Historically PVH’s CEO is conservative with his outlook, especially of late when the company has outpaced earnings estimates substantially. Guidance following 2Q results is no different, but the tone on back to school suggests a more robust reality. On the company’s 2Q call, CEO Manny Chirico said, “The only thing that gives me pause is what I read in the papers, and people worried about back to school. Our back to school business has gotten off to a very strong start. And I feel good about where we are transacting for the last six weeks.”

  • Looking below the surface of The Buckle’s 13.6% sales increase (+8.6% comps) reveals a stark contrast between the men’s and women’s trends. For the quarter, men’s sales decreased by 2%, offset by a 27.5% increase in women’s. Accessories were also strong, increasing by 20%. The near-30% growth in women’s far outpaces the growth in the category when compared to any other retailer, in the mall or in a strip. Management attributes its success to “newness”.

  • Real estate assets and brand names continue to shift around. On Stage Stores quarterly call the company articulated its strategy with the recently purchased Goody’s trademark as well as opening locations under the Goody’s banner. Originally, management intended to buy the brand and retire it as a defensive measure. However, management now realizes that in certain markets Goody’s still has brand recognition. As a result, SSI now plans on opening a total of 40 stores under the Goody’s brand. More proof here that retailers just never seem to die.

  • BKS is seeing very favorable rent negotiations as 87 leases out of 774 are at or near the end of their term. An additional 124 leases are coming due next year and are also being renegotiated. The company made it clear that new lease terms are below current lease rates. This is not the first we are hearing of retailers regaining leverage as tenants, but with 30% of the store base potentially seeing lower rents for the next 5-10 years, the impact could be measurable.

  • Children’s Place is seeing a mid single digit decrease in product costs for goods that are currently in place for back to school. Cost reductions are even greater for holiday product and Spring ’10. We continue to be bullish on opportunities for margin gains at companies with high exposure to China (and to a lesser extent Asia) sourcing.

  • With competition always trying to eat away at GameStop’s industry leading used-game market share, you can always count on a question or two about it on the company’s conference calls. As of 2Q, the company is not seeing any competitive impact from tests underway at Amazon, Best Buy, or Wal-Mart. The company remains focused on monitoring the competition, but for now is probably more concerned with title slippage and uncertainty with the economy- both reasons for which the company slashed guidance for the remainder of the year.

  • While Abercrombie is decreasing its offering of logoed merchandise, Aeropostale appears to be heading in the opposite direction. This trend is best summarized by management’s quote, “…frankly our customer cannot get enough of our name and responds to it whether we put it on a t-shirt, polo, or cami.” At one time, Abercrombie customers couldn’t get enough of the logos either…




    -Tarrant Apparel Group is in the process of a merger that will take the company private and return it to the control of its founders - Shareholders of Tarrant Apparel Group on Thursday approved a merger that will take the company private and return it to the control of its founders, the company said. Investors representing more than 74 percent of the company’s outstanding shares voted in favor of the move at a special meeting, the Los Angeles-based private label manufacturer said. In February, Tarrant agreed to sell its outstanding shares to an acquiring firm headed by founders Gerard Guez and Todd Kay at the price of 85 cents a share, or about $15.2 million. Shares of the company closed trading Thursday at 84 cents. Guez is Tarrant’s chairman and interim chief executive officer and Kay is the company’s vice chairman. Under the initially disclosed terms, the deal will merge the manufacturer with Sunrise Merger Co., which will then sell the shares not already owned by Guez and Kay to Sunrise Acquisition Co. The two are members and managers of Sunrise Acquisition. <>


    -Escada AG’s chief executive officer Bruno Sälzer and chief operating officer Werner Lackas have sold their stakes in the German fashion house -  According to the company, Sälzer and his wife sold all their shares. When Sälzer assumed the top post at Escada in July 2008, he and his wife reportedly paid about 3 million euros, or $4.7 million at that time, for the shares, which equal a stake of about 1%. The executives sold their shares to avoid any conflict of interest as shareholders in future talks with potential investors. “If a solution is reached in the next couple of weeks, someone could say I pushed, as a shareholder, in a particular direction,” Sälzer told WWD. “And if a possible investor wants my business model, it’s best not to be a shareholder.” In addition, from the bondholder side, “it was always a problem that they thought I was very close to the Herz brothers [Wolfgang and Michael, who are major shareholders]. Now I have one hat on, and I’m interested to keep it on,” the ceo said. <>


    -Billabong Shares Slumps After Earnings Miss Estimates - Billabong International Ltd., Australia’s biggest surfwear maker, fell the most in three months after posting earnings that missed some analyst estimates. Slumping demand in the U.S. and discounting at home is cutting profitability in Billabong’s largest markets as the company also battles a rising Australian dollar, which is lowering the value of overseas sales. Billabong’s result was weak with pressure across both the Americas and Australasia. The Australian dollar’s 8.6% rise against its U.S. counterpart since May 18 cut almost A$3 million from earnings, Billabong said.  Annual sales in the Americas rose 35% on the company’s purchase of surf accessories maker DaKine Hawaii Inc. Excluding acquisitions, sales from the Americas fell 13%. Billabong’s margin in the Americas, which measures earnings as a proportion of sales, fell to 11.9% in the past year from 18.1% in 2008. Earnings at the company’s Australasian division, which includes Australia, New Zealand and Asia, fell 22%. <>


    -Juicy Couture promoted Laura Mays to senior vice president and managing director, North America - Mays had been divisional vice president of merchandising at the Liz Claiborne Inc.-owned brand. In her newly created role, she is responsible for retail, wholesale and online distribution for the brand, focusing on merchandising, company-owned stores, wholesale and marketing for the Juicy Couture and the new Bird brands. Mays has been with Liz Claiborne for more than six years in a variety of jobs, first with the Liz Claiborne brand and then at Juicy Couture, where she has been senior vice president of sales, vice president and general manager of accessories and, more recently, divisional vice president of merchandising. Mays has overseen the development and growth of the Juicy Couture accessories business and the positioning of apparel as well as the other categories — including children’s wear, footwear and pet attire — which make up the Juicy Couture lifestyle brand at wholesale. <>


    -Facebook finds a friend in e-retailers, and added revenue - Facebook yesterday began testing selling products from outside merchants through its site. The king of social networks has opened its Facebook Gift Shop to a handful of retailers that are marketing both virtual and physical goods. <>


    -Sears and Kmart help stimulate Santa’s wallet with savings card - ‘Tis the season for saving, but in a few months it will be the season for spending as consumers pull out their wallets over the holidays. To make sure shoppers have enough cash to go around, Sears and Kmart this week launched a card to help them save.  <>


    -Sam's Club is giving its members the chance to say goodbye to coupon clipping - The warehouse club today announced the introduction of eValues, a personalized digital savings program providing paperless coupons. Members will automatically receive customized discounts, based on the items they purchase, at checkout. Offers cover a wide-range of products including food, office supplies, tires, appliances, electronics and mattresses. eValues accounts can be managed online at Accounts can also be checked via kiosks that have been installed at more than 600 store locations. Offers can be sent to member's iPhones, BlackBerrys and smart phone devices for shopping ease. The eValues program is available at Sam's Club locations for those enrolled in the Sam's Club Plus Advantage and Business memberships. A recent Scarborough Research study found e-coupons have been gaining in popularity. Eight percent of U.S. households currently receive coupons via e-mail or text message.  "This program enables us to simplify our members' lives by eliminating the wasteful practice of couponing that requires consumers to do all the work," said Cindy Davis, executive vice president of membership, marketing and e-commerce at Sam's Club, in a statement. "With eValues, we can ensure we are providing superior, more relevant offers based on member preferences."  <>


    -Liberty, the iconic London department store, is reported to be in talks with US value chain Target about a collaboration on clothing next year - According to reports, talks between Liberty and Target are at an advanced stage. The collection would potentially launch for spring 10 and would likely feature a range of clothing and accessories pieces worked in iconic Liberty print fabrics. Liberty prints have already been used by several high street fashion chains in the UK, including Topshop and Gap. The department store has also linked up with designers and celebrities such as Luella Bartley and Ronnie Wood to help boost brand recognition.  <>


    -The Consumer Product Safety Commission has exempted textiles from lead testing requirements - The panel, which posted the decision on its Web site Thursday, said it determined textile products typically do not contain levels of lead that are harmful to children and, therefore, don’t need to be subject to the law’s testing requirements. The federal Consumer Product Safety Improvement Act, which went into effect last year, significantly lowered the lead limits for all products designated for children aged 12 years or younger. The requirements will be phased in over a period of several years, eventually decreasing to a maximum of 100 parts per million by August 2011 from the current 300 parts per million. Natural fibers including cotton, linen, jute, silk and wool, as well as manufactured fibers such as rayon, acetate, polyester and nylon, are all exempt from testing requirements, according to the commission. Exceptions to the decision include fabrics that have decals or prints added to them after the dyeing and finishing process. Children’s leather items with pigment-based coatings must also be tested. <>


    -Genfoot America enters distribution, sales, and marketing deal with Montabelluna - Genfoot America announced earlier this week that the outdoor footwear company has entered into a deal with Montabelluna, Italy-based Aku Italia to oversee the distribution, sales and marketing for Aku outdoor and trekking footwear in North America. A separate division devoted to the Aku brand initiatives is currently being put in place. “We will quickly integrate all of Aku’s sales and operational requirements into Genfoot’s existing framework. Our short-term goal is to reintroduce [the] Aku brand and quickly establish the Aku product through specialty outdoor retailers in the North American market,” Genfoot President Richard Cook said in the statement. A soft launch is planned for spring ’10, followed by a larger push to key retail accounts for spring ’11. <>


    -A line of juniors' sportswear based on the colorful characters of Paul Frank has hit racks at Macy's stores nationwide - The apparel line by Jerry Leigh of California includes knits, woven's, T-shirts, fleece hoodies and related separates. "We are thrilled to collaborate with one of the most distinctive and creative brands in the fashion world," says Andrew Leigh, president of Jerry Leigh of California. "This innovative and colorful apparel line has appeal for our core consumer and is uniquely positioned to dominate in this category at retail." Besides Macy's department stores the sportswear is also available at Paul Frank stores, fashion boutiques and other select U.S. retailers. Further distribution is planned for 2010. "Our partnership with Jerry Leigh has provided us with the bandwidth to create an inspired sportswear line that teen girls everywhere will love," says Ryan Heuser, co-founder and president of Paul Frank Industries. "We've produced a one-of-a-kind look that will appeal to new and long-time Paul Frank fans alike." <>


    -Macy's has unveiled its newest exclusive apparel line by fashion designer Rachel Roy in stores - The collection, Rachel Rachel Roy, features contemporary sportswear, footwear and accessories, including chunky sweaters, T-shirts with graffiti graphics, print leggings, leather bombers, handbags and party dresses. The line retails from $59 to $299."Rachel Roy has an incredible fashion sensibility and design integrity, and her new Rachel Rachel Roy collection at Macy's is feminine, individualistic and versatile," says Nicole Fischelis, ready-to-wear fashion director for Macy's. "This is exactly the type of newness that gets the customer excited about fashion again. I think she will really love this collection." <>


    -Five J.C. Penney stores in three states have been robbed in the last 3 months - Five J.C. Penney stores in three states have been robbed of jewelry and other merchandise worth millions since June by brazen burglars who broke in through the roofs. The most recent heists this week were filmed by surveillance cameras that showed a pair of masked, glove-wearing thieves. Police said they descended into two stores in Covington and Lafayette, La., via ropes, evoking images of a Hollywood thriller. Robbers hit a Penney’s store in Indianapolis in June and units in the Houston suburbs of Pasadena and Rosenberg in July. The losses at the off-mall stores — primarily gold and diamond jewelry, denim and other items — are “into the millions,” Penney’s spokesman Tim Lyons said Thursday. <>


    -New York’s garment center is in danger of extinction - New York’s garment center, once the heart of an industry that employed hundreds of thousands of workers and produced most of the clothing in the United States, is in danger of extinction. For decades, cheaper foreign competitors and rising rents forced many of the sewing and cutting rooms and the button and zipper shops that once thrived on the side streets south of Times Square to close, shrink or move as mass production shifted to China, India and Latin America. Now, even the remaining factories and shops that make the couture coats, dresses and other apparel for glamorous fashion designers like Nicole Miller, Yeohlee Teng, Anna Sui and Nanette Lepore are in jeopardy. Owners say they are caught in a vise between declining retail sales and landlords eager to find better-paying tenants. Some city officials and industry leaders worry that if manufacturing is wiped out, many of the designers who bring so much luster to New York will leave, along with the city’s claim to be a fashion capital rivaling Paris and Milan. The damage would be undeniable, given that the industry’s two big annual events — Fashion Week in September and February — attract enormous numbers of visitors and generate hundreds of millions of dollars in economic activity. The Bloomberg administration is now considering designating one or more large buildings in the garment center solely for manufacturing and related businesses. For 22 years, the city has protected the garment district through special zoning that restricts building owners — from 34th to 40th Street, between Broadway and Ninth Avenue — from converting factory space to offices, which command higher rents.  <>



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UK Retail Sales Up, Unexpectedly…

The UK Office for National Statistics posted positive retail sales for July today, up 0.4% sequentially or +3.3% annually, after rising 1.3% in June M/M.  While we didn’t expect this jump, we also can’t ignore the facts: though we see inflation getting ahead of growth for the island nation, the positive momentum in retail sales, though rear-view, suggests that the consumer’s willingness to spend is reflective of a positive outlook on the broader economy.


On the longer term, however, the big question is if this momentum can be sustained. As the chart below illustrates, the last six months show a very incomplete picture.  While we remain bearish on the country’s overall fundamentals (see our previous posts on the UK for analysis), including a ballooning budget deficit that pushed up to 8 Billion Pounds (~$13 Billion) in July, this retail sales data point is an important callout, and one we will be monitoring closely to discern any trend shifts.


With the UK economy slowly coming off the bottom and the FTSE vying with the S&P500 for YTD performance at 7.2%, we’re still not bulls on the country’s growth prospects over the intermediate term, yet are cognizant that within the European space market performance has not been tied solely to fundamental drivers this year.


Matthew Hedrick



UK Retail Sales Up, Unexpectedly…  - mh uk retail



The Wall Street Journal is reporting that SBUX is going to start charging up to a quarter more for some drinks.  My first reaction was that for a company that is currently trying to fight the perception that its drinks are too expensive, it might be a little premature for the company to raise prices. 


Starbucks’ same-store sales growth improved in fiscal 3Q09, but management attributed these sequentially better results to its value combo offerings and limited time promotion of iced coffee for under $2.  Value is working right now to drive traffic for the company (only less negative) and by raising prices, SBUX runs the risk of damaging this value perception.


The reality is that the WSJ only has part of the story.  The price increase is consistent with the company’s comments from its Q2 earnings call as it relates to SBUX’s “new pricing architecture,” which began rolling out May 5 in several key markets and will continue over the coming months.  The goal is to provide value to customers while managing margins.   


The end result of the “new pricing architecture”, SBUX is fine-tuning its pricing in select markets to better reflect geographic and cost considerations.  There will be minor changes that will both lower and raise prices.  It’s important to note that this is the first time in the company’s history that it has lowered prices.


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