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Market shares shifted a bit sequentially but nothing material.


Total shipments into North America increased sequentially to 20k from 16k in 1Q09

  • We estimate new and expansion units decreased to 8,700 from 11,000 in 1Q09 and 22,500 in 2Q08
  • Replacements and Canadian shipments had a sequential uptick to 10,700 from roughly 5,000 in 1Q09 and 7,350 last year

Market shares:

  • IGT: 35%, level with last quarter and down from 41% y-o-y
  • WMS: 23%, down from 25% last quarter but up from 19% last year
  • BYI: 20%, up from 17% last quarter and level with last year
  • ALL: 1H09 results were at 12% up from 10% last year

Other “trends”

  • WMS looks capable of maintaining its share between 20% and 25% in NA especially considering the positive feedback we've been getting from the operators
  • BYI share appears to have flattened at approximately 20%
  • IGT have stabilized at around 35%
  • ALL seems to be gaining traction with its new Viridian cabinet

The chart below summarizes our slot ship share estimates for Q209:


                                                                           2Q09 SLOT SHIP SHARE  - slot suppliers na marketshare rg



This morning BYI announced that it won a new systems contract with Coushatta Casino Resort in Kindler, LA.  BYI's ACSC Version 11 system will be replacing Arisotcrat's Oasis system.  In addition to providing slot monitoring, marketing and accounting, BYI will also provide Coushatta with add on products like iView, Bally Power Bonusing, Bally Rewards, and Power Winners.


The installation is scheduled to take place by year end 2009, or BYI 2Q2010.  We estimate that BYI will recognize $10-11MM at installation and recurring revenue of $2MM per year from this contract.  In terms of earnings, BYI should generate one-time EPS of $0.08 and annual recurring EPS of $0.02.



25 AUGUST 2009


We’re still 4-6 months off of what we think will be a meaningful step-up in retail M&A. But this week’s mini-round of asset sales are definitely notable – especially for those ‘investors’ that barked at the Charlotte Ruse Board for not accepting a single digit bid 82% ago.



It’s hardly a secret that M&A has picked up across the board in almost every sector. But have you noticed that on a relative basis Retail has not participated? It started off strong earlier this year, and M&A over the past few months has pretty much died down to a crawl. My view on this has been, and continues to be, that retail, in aggregate, does not NEED to sell assets right now due to the cash flow stability and visibility presented by a) stabilizing top line, b) tight inventories, and subsequent gross margin predictability, c) sg&a cuts and d) capex cuts. My extremely strong view is that the M&A ante will pick up in 1Q10 when we see who will prove to have invested properly today in proactively driving their models, instead of milking the margin structures for all it’s worth (i.e. printing too much profit today and risking growth and cash flow stability next year).


With all that said, I was definitely surprised by yesterday’s announcement that Advent International is purchasing Charlotte Russe for $17.50/share or a total of $380 million. Recall that in November of last year, the company’s largest shareholder at that time attempted to take over the company for $9.50 per share- a bid that the board rejected, and many major shareholders openly dismissed. Now we’re looking at a price 82% higher for a sub-par business. Here’s a great example of a severe duration mismatch between those that rented the stock last year versus the Board of Directors.


Other M&A Callouts


  • Speaking of M&A, fashion blog “Fashionista” is suggesting that DKNY is up for sale by LVMH. The blog goes on to suggest that the brand is no longer a good fit with the company’s super premium/luxury strategy. While this is certainly noteworthy and something to watch, it’s probably more interesting that the story was broken in a fashion blog. It’s only a matter of time before trolling Facebook and Twitter will yield tangible investment ideas.


  • Nike is looking to sell its 100% stake in the United Soccer Leagues (U.S.L), a legacy position it acquired along with the company’s purchase of Umbro in 2007. The relatively unknown league has teams in the US, Canada, and Puerto Rico. Finding a buyer for the non-core asset however, may be more of a challenge. The most obvious buyer would be Major League Soccer (M.L.S), U.S.L’s biggest and more popular competitor. However, the M.L.S has chosen not to submit a bid for the league, which is likely due to potential anti-trust issues as well as the fact that the official sponsor of M.L.S is rival Adidas.





-Price is even more of a factor than last year for buying sporting goods and athletic footwear and apparel - Following on a study conducted last summer by The SportsOneSource Group that indicated that price had become the number one motivating factor in determining where to shop for sporting goods or athletic footwear and apparel, it comes as no surprise that the factor has become even more important this year.  The interesting point is how high product quality was ranked by consumers and the increased importance of convenient locations. An even higher percentage of adult consumers viewed Price as the most important factor when deciding where to shop versus the 2008 report.  Product Quality was the attribute ranked second highest and Product in Stock was the third ranked attribute. <sportsonesource.com>


-Lower production costs in inland China drive plants to move away from the coasts of Guangdong  - In view of the lower production costs in the inland region, Chinese leather and footwear processing are moving out in large number from the coastal belt provinces of Zhejiang and Guangdong. This is due to the ever-soaring labour costs and increasing investments in complying with the country's new environmental policies, while inland provinces such as Chongqing and Fuxin, received assistance from the local government, have been building industrial zones where offer factories comparatively lower land prices, labour, raw materials, water and electricity and modern sewage treatment systems. Exports and imports from the leather sector have dropped by 10.8% and 17.7%, respectively in June 2009. <fashionnetasia.com>


-Margin Boost: brands and retailers are getting the cheapest shipping rates anyone has seen in a while - Brands and retailers are enjoying some of the lowest ocean freight rates they’ve seen in years and are likely to see only slight increases going forward. It could take several years for the world’s major ocean carriers to dig themselves out of an oversupply issue that they spent the last decade or more creating. Prior to 2007, rising global economies and booming Chinese manufacturing capabilities spurred a binge of ship and container building. The number of 20-foot equivalent units, or TEU, handled by the Port of Los Angeles alone went from 1.7 million in 1998 to 8.5 million in 2006.  <wwd.com/business-news>


-Congress attempting to pass a bill that will raise manufacturing costs in order to create a more green environment - Greenpeace has been trying to push a bill at the US Congress that requires chemical plants to adopt environmentally friendly and safer manufacturing process. In the meantime, the organization has recently protested in front of a textile chemical plant against its use of chlorine gas in its manufacturing process which might cause danger to the nearby community. If the legislation is passed, safer technologies can be enforced throughout the country. A spokesperson for the National Association of Manufacturers termed the bill "regulatory overkill". <fashionnetasia.com>


-Textile and apparel manufacturers in Hong Kong and China which export to the EU could face obstacles in the coming years - Further requirements of a tough law on chemicals and their safe use will have to be considered in relation to their products from 1 June 2011. While these stringent requirements set out in Regulation 1907/2006 (REACH Regulation) are not limited to the textile and apparel sector, given the significant amount of textiles and clothing exported from Hong Kong and the mainland to the EU, an early warning is particularly important. <fashionnetasia.com>


-Under Armour will be sponsoring five New York high school basketball teams - UA will sponsor 5 NYC basketball teams as part of 27 high school basketball teams it will sponsor during the 2009-10 season, according to a report in the Daily News. That list includes Lincoln High, which has won seven of the last eight PSAL championships.  <sportsonesource.com>


-Warnaco names David Cunningham as president - Apparel maker Warnaco Group Inc. said Monday it named David Cunningham as president of its Calvin Klein Jeans division, replacing Janice Sullivan, who is leaving the company. Cunningham joined Warnaco in 2006 as president of the Chaps business. Before that, he was group president for Kenneth Cole at Paul Davril Inc.  <forbes.com>


-Timberland Co. appointed Jim Davey as vice president of global marketing - Prior to joining Timberland, Davey spent eight years with Nickelodeon and Viacom Consumer Products, most recently as senior vice president, global marketing, planning and retail development. <sportsonesource.com>


-Lowe's Bets on Australia Property Market in Woolworths Hardware Venture - Lowe’s Cos., the second-largest U.S. home-improvement chain, will team with Woolworths Ltd. to enter Australia’s A$24 billion ($20 billion) hardware market, betting on an economy where home-building approvals rose by the most in four years. <bloomberg.com>


-Whole Foods attempts to quell boycott cries - Protesters and unhappy customers have taken to the streets and to social networking sites to express their displeasure regarding Whole Foods chief executive John Mackey's recent Wall Street Journal op-ed column. Some are threatening to boycott the store altogether. The column, which appeared on August 12, was critical of President Obama's healthcare plan. It urged the country to embrace a more free-market healthcare system. Yesterday, members of the Washington D.C.-based United Food and Commercial Workers Union demonstrated outside of Whole Foods' stores in two locations in Ohio and plan to continue disseminating educational flyers to shoppers over the next few weeks. The group has emphasized the incongruity between Mackey's assertions and the brand image that Whole Foods has built. Online, the playwright Mark Rosenthal's "Boycott Whole Foods" Facebook group now has over 26,000 members. Though Whole Foods' own Facebook page has comments from numerous supporters stating their solidarity with Mackey and commitment to their local stores. <brandweek.com>


-Strong online sales growth in July - Online sales were helped by strong fashion sales and wet weather in July with customers spending £4.2bn, an increase of 16.8% on last year. <retail-week.com>


Thieves stole a semi-trailer full of footwear from a Wolverine Worldwide's distribution center in Howard City - Police say the thieves used their own semi-truck to steal the 40 foot long semi-trailer Monday morning. The trailer is said to have been full of footwear at the time it was stolen. Officials say the semi-trailer is is grey in color with "MAERSK" written along the side. <wwmt.com>


-LVMH wins trademark battle - A federal judge last week awarded more than $400,000 in damages to LVMH Moët Hennessy Louis Vuitton in a five-year-old trademark case over its Epi Leather trademark. The luxury house filed the suit in January 2004 alleging Carducci Leather Fashions Inc., a New York retailer, had sold counterfeit handbags bearing Louis Vuitton trademarks. As the case proceeded, however, the company discovered another firm, Bonini Italian Handbags Inc., supplied the items and added it as a defendant. Louis Vuitton and Carducci settled in 2006. According to court documents, Bonini never answered the allegations and the court eventually entered a default judgment against the company. <wwd.com/business-news>


-Tiffany & Co. won a dispute over the sale of its Little Switzerland  business - A federal judge last week affirmed a $3.6 million award that Tiffany & Co. had won at arbitration in a dispute over the sale of its Little Switzerland Inc. business. Tiffany and NXP Corp., which bought the Caribbean jewelry chain through its Oakland, Mich.-based assignee Dhirim Inc. in 2007, had fought over the final sale price because of balance sheet adjustments. The two companies entered arbitration, as called for in the purchase agreement. In April, an arbitrator at financial services firm KPMG decided in Tiffany’s favor and awarded it $3.6 million. Dhirim refused to pay and, several weeks later, brought a lawsuit in U.S. District Court in Detroit seeking to have the award vacated.  <wwd.com/business-news>


-Black Halo, a contemporary women's clothing line, has launched its first marketing campaign - includes photo ads in the September issues of Elle, Nylon and Interview magazines. The campaign, via Sew Branded in New York, was developed in late July and the beginning of August after the company held a photo shoot in order to update its Web site. This led Black Halo to venture into e-commerce, which in turn led to the decision to advertise. "It just made sense," said Sean Pattison, vp at the clothing company. What began as a simple project "took on a life of its own," he said. By advertising in fashion magazines, the company is looking to create "greater brand awareness for the general public," Pattison said. Black Halo ads will also run in the October and December editions of Nylon as well as the October issue of Interview. <brandweek.com>


-Spring Preview with The North Face - The North Face is freshening things up for spring ’10. The San Leandro, Calif.-based brand has updated its running and trail running styles (including a faster, more athletic look and a revamped logo) and is debuting two new eco collections with the men’s Kyoto and the women’s Suzy Qzy, as well as an expanded focus on casual styles. But the brand, which ranges from $80 to $130 for most styles, isn’t abandoning its technical focus, with trail running and multisport styles making a strong showing. Styles from The North Face are available at outdoor and athletic shops, as well as select sporting goods and department stores. <wwd.com/footwear-news>





TIF: Charles Marquis, Director, exercised the right to buy 11,856shs ($29k) adding roughly 10% to total common holdings.



  • James Johnson, Director, sold 2,528shs ($114k) or roughly 20% of total common holdings.
  • Troy Risch, Executive Officer, sold 1,478shs ($67k) upon the vesting of options approximately 5% of total common holdings.


BGFV: Jeffrey Fraley, Senior VP – Human Resources, sold 10,000shs ($141k) nearly 40% of total common holdings.

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ALL reported weak results, but they came in at the high end of their guidance given in April.  An intriguing 3-5 year plan was outlined.




  • Double participation share in the US
  • Improve ship share in Australia
  • Reduce volatility in Japan
  • Focus the organization on key markets while exiting the low ROI markets





Commentary on 1H09 results:

  • Revenues were down 5.3% in 1H09 vs 1H08 (would be down 20% on a constant dollar basis)
    • EBITDA of 129.4MM was down 19% (or 31% on a constant currency basis)
    • Operating profit after tax was down 38%
    • Operating cash flow was up 15.8%
  • Operating results were at the top end of their guidance in April due to better results in rest of the world - especially South America
    • North America met expectations
    • Japan was the weakest region and performed below expectations
  • North American market conditions remain challenging
    • Sold 4,264 units into North America vs 5,252 in last yrs 1H
    • Decline in unit sales was 18.8%, conversions up 18.8%
    • Systems revenue was up 9% and services revenue up 10.3%
    • Over 10k Viridian units placed
    • Ship share was improved
    • Gaming operations        
      • Expect to benefit in the second half from higher install base and successful JAWS launch
      • We saw this product at Mohegan Sun yesterday and heard good things
  • Japan units declined from 32k in 1H08 to 5k units 1H09. Overall market volumes continue to be challenged by the weak economic environment
  • Japan – absence of major game releases caused poor results – only 5,747 units sold.  Australian dollar also weakened, which increased reported results
  • Australia is a challenging market but some signs are encouraging
  • Recurring revenue was impacted by lower win per day, partially offset by mix
  • Asia Pacific was negatively affected by limited openings, tough conditions in Europe 
  • New Zealand was up 210% (profit)  
  • South Africa and South America sales decreased by 14.4% and 30.6%, respectively
  • They are outsourcing more R&D to India



  • Expect market to remain challenged
  • Pricing holding up despite low volumes
  • North America will continue to roll up JAWS and introduce new games
  • Japan will release 2 license titles
  • Will focus on Veridian rollout internationally
  • 3 to 5 year phase strategy to deliver growth - no quick fixes
    • Need to focus more on the US – participation market especially
      • Want to double their participation share over the next 5 years
    • Games that are player led, technology driver
      • “customer centric” model and more strategic approach about managing IP
      • Faster, more focused product development – more outsourcing
    • Best Games, best system
      • Focus on server based
      • Grow their presence in US systems
      • Build a stepper business
    • More strategic market focus in terms of where they want to compete
    • World Class Organization
      • Right-sizing the business, cost cutting, stream lining the organization
      • More of the team based in North America
  • Australia – need to close the gap between ship share and install base (à la IGT in the US)
  • Japan – aiming to achieve 50,000 units sales per year in the future
    • Building pipeline of license characters which have more appeal than developed characters
  • Aim to exit 30 jurisdictions that aren’t profitable so they can focus on the markets with real opportunities like Spain, Macau, Mexico, etc
  • Accordingly, bottom line priorities are
    • Double participation share in the US
    • Improve the share in Australia
    • Reduce volatility in Japan
    • Increase focus and resources on key markets while exiting low ROI markets



  • Quantify cost savings on overhead?
    • 10-15MM in costs related to implementing the strategy (due to restructuring costs)
    • Next year they expect the strategy to be break even and then, going forward, CF positive
    • Targeting the run rate they achieved 1H09 to 2H09
  • Ship share in Australia was 33%
  • Moving management and R&D to the US?
    • They have three studios in the US and are looking to add more
    • They believe they have the best math
    • US market is just too important to “export” games to the US - need to develop US centric games
    • ALL plans to keep total R&D at current level – need to invest “smarter”
  • New markets in the US? Do they want more Class 2 presence?
    • ALL has not truly competed heavily in Class 2 before but is looking at it
    • The biggest opportunity is class 3 - IL & OH
  • Jaws – install base is up by 500 net on the games ops side (900 JAWS installed)
  • How will they increase their participation share? Who will they take out per say?
    • In 6 months they increased their install base by 10%
  • Japan – how confident are they that they can manage the volatility better – timing build out of pipeline of licenses?
    • Licensed games do much better than in-house developed games
    • There is a need for at least 2 licenses per year to hit their numbers – will take a few years
  • Trying to grow the revenue line without growing the cost line by right-sizing and having better focus
    • Getting best games out/speed to market – takes 12-18 months (especially for licensed games)… so it will take some time
  • Replacement market – still see the next 6-12 months as challenging
  • In North America – why did they just have flat prices vs increases at competitors?
    • ASP has usually been higher than competitors
    • 1H09 had a large # of corporate deals (PA) that have higher than usual discounting
  • How many steppers did they ship in 1H09?
    • They launched late in the half – so only 300 units
    • They don’t yet have enough content on stepper, but a good platform.  It is a whole new segment for them
    • Discounted the steppers
  • Japan – have they procured brands already?
    • Yes – have a number of licenses that they have procured – 6 potential launches for next year – 4 are licensed, 1 is a major license
    • Need to mature licenses, buy licenses that are more nascent and then develop them over time
  • Increased use of licensing is a theme in the slot business, how to quantify the impact on margin?
    • Licensing costs are a fee per day on hardware and software
  • New Zealand 1H09 results was driven by a regulatory change – so 2H09 won’t be as good
  • Mexico strategy?
    • Class 3 is now legal, they are in the process of indentifying product for that market
  • “Can’t save your way to greatness”
  • 1,300 of the games they sold were to new sites/expansions in 1H09
  • Have a number of stepper games on trial that they hope will be converted to sales
  • They don’t see improvement in North America at this stage


Martha's Depression

“Truth is what stands the test of experience”

-Albert Einstein


I suppose that it’s only fitting that Washington is going to stand up today from Martha’s Vineyard and tell you, with a straight face, that Ben Bernanke is the Almighty Savior for averting the next “Great Depression”. This has to be the hyperbole of the year.


Being the “expert” of everything “depressions”, you’d think that Mr. Bernanke would get the joke. With China running high single digit GDP, the US on the verge of reporting positive year-over-year GDP growth in Q4, oil and copper having doubled… these guys have to be kidding me.


Per Wikipedia, “a study by the Martha's Vineyard Commission found that the cost of living on the island is 60 percent higher than the national average and housing prices are 96 percent higher…”… nice place to tell America stories from, I guess. The only Depression I see at Martha’s is Dick Fuld no longer being able to show his mug there.


Storytelling and groupthink run rampant these days, so don’t get upset about the conflicted message embedded in America’s financial leadership. We’ve all been there and done that – just deal with it, have your own investment process, and capitalize on it. This morning’s marked-to-market reaction to the Bernanke re-appointment from the island retreat where alleged food bank lines are forming doesn’t rhyme with the Depression narrative.


Asia sold off across the board. This makes sense, because the losers here are America’s creditors. As Bernanke panders to a ridiculous notion that we are in a Depression and holds this country’s hard earned savings accounts at a zero percent “emergency rate”, the US Dollar continues to weaken. As the dollar weakens, the Debtors, Bankers, and Politicians get paid. The Chinese Creditor and American Saver foots the bill.


Some might argue that China sold off -2.6% because China Construction Bank (2nd largest bank in China) said there is excess cash in the Chinese banking system right now and they’d like to stave off asset bubbles (at least they admit it!). Some might argue that China was down because it was up a cumulative +7.2% in the three trading days prior. I wouldn’t disagree with either argument. Those, combined with America’s compromised currency, provide the collective wisdom of global macro crowds.


Of course, there are many other factors in macro this morning that sing a different tune than the blues of those staving off starvation at Martha’s this morning. Consider this non-fiction 3 factor reading list:


  1. The US Dollar is down another -0.1% to $78.21, testing another critical breakdown of the $78 line (which has only been sustainably broken once in the last 38 years)
  2. Israel RAISED rates to +0.75% and the Tel Aviv 100 Index shot up another +0.78% on the news (that market is up +64% YTD, and they don’t believe in ZERO rates)
  3. Spain is trading higher this morning after reporting the lowest levels of producer price deflation since 1976 (-6.7% y/y); Dollar down = Euro up = import EU deflation


Again, a Burning of The Buck that’s sponsored by a political Bernanke backboard of “he knows his Depressions”, is simply moving more and more capital away from the United States of America and to other markets in this world. The world is a large place.


Rather than qualify my investment opinion (I have learned the “not to do” part of that lesson the hard way), it’s more palatable in these days of increasingly interconnected global markets to just follow the money.


I am certainly no Jerry McGuire, but I can definitely show you the money. Yes, some of it is at Martha’s… but a heck of a lot more of it is on China’s balance sheet right now. As Bernanke panders to the politics of his job security, understand this: The Client (China) is watching.


Whether American politicians get this or not, foreign capital flows to country’s with positive rates of return. If you don’t want to believe that, ask someone in Japan what ZERO rates of interest do to attract investment.


This morning’s move by the Israelis is not unlike those that have recently been signaled by both the Australians and Norwegians. All three of these countries want to show in higher Fed Funds equivalent lending rates to both The Client (China) and their domestic savers. This isn’t complicated to understand. Unless you are still living the narrative fallacy of Martha’s Depression.


I said I was going to keep selling US Equities yesterday, and I did. US Equities now have the lowest allocation in our real-time Asset Allocation Model. I don’t have to recommend you keep your hard earned capital in a country that’s as conflicted and compromised in her monetary policy as America is. I don’t have to be perpetually bullish on US Equities. Everything has a time and a price.


My immediate term TRADE resistance for the SP500 is now 1034. A correction to the my immediate term TRADE support line of 1005 is as perfectly probable as Bernanke and Obama telling you they were the Americans who averted Martha’s Depression. Make sure you have some sunscreen on boys. The You Tube cameras are on.


Best of luck out there today,






EWH – iShares Hong KongThe current lower volatility in the Hang Seng (versus the Shanghai composite) creates a more tolerable trading range in the intermediate term and a greater degree of tactical confidence.  


EWZ – iShares BrazilPresident 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. 


QQQQ – PowerShares NASDAQ 100We 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.  


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. 






XLP – SPDR Consumer Staples – We shorted XLP on a bounce on 6/21. One way that investors chase a bearish USD is buying international FX leverage in global consumer staples. Shorting green.


DIA  – Diamonds Trust - We shorted the financial geared Dow on 7/10, 8/3, and 8/21. 


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.


Eye on Vietnam: Notes From Ground Zero

Our COO and the head of our Hong Kong office, Michael Blum, recently visited Saigon and relayed to us some of his anecdotal thoughts from the trip.  As many of you know, Saigon, also known as Ho Chi Minh City, is the largest city in Vietnam with a population of 7,123,340, which is ~90% ethnic Vietnamese.  While the city accounts for only 0.6% of the land area and 7.5% of the population of Vietnam, it accounts for over 20% of the GDP.


Vietnam is still a relatively poor country with purchasing power of ~$3,300 per capita; it has also had one of the highest growth rates globally over the past decade.  The country’s primary industries are: manufacturing, information technology, and agriculture.  The country also has one of the most open economies in Asia with two way trade estimated to be ~160% of GDP, more than twice that of China and four times India.


Michael’s notes are below:


Saigon is bustling. The new Intercontinental Hotel, located opposite of the US Consulate, will open its 300 rooms in the coming weeks – a small hotel by most standards these days. Yet in Saigon, they are much needed, even though the country’s economy has seen a rollercoaster ride since I last visited in early 2007. The manager of a nearby 5-star hotel says to me:  “Under normal circumstances, the competition might depress occupancy but there is a lack of luxury rooms in Saigon – I’m not expecting any adverse impact on my business.”


Traffic around town is at a point where getting from A to B is a challenging task. The city is known as the world’s capital of the motorbike. Everybody seems to be up-grading their motorbikes to newer, bigger and better models – even the old lady has traded her bicycle in for a motorized version. The local BMW dealer is doing well and I hear that the newly affluent class has taken a fancy to Harley Davidson.


While inflation has hit the local population very hard, Saigon has become much more commercial, more colorful and more international and the population has grown. All of the international fashion brands are now present. There are cafes everywhere, small stores crowd every inch of street front property and upscale restaurants do very well. Just a few years ago, they were quiet refuges. Now, reservations are essential. And everyone wants to get paid in USD – even though technically illegal unless you are a specially licensed 5-star hotel – to have a stable currency against the 30+% inflation of the Dong.


Yet for the expatriate community here, however small it may be, Saigon is a boring place. “There is no theater, no ballet, no opera. We only recently got a somewhat nice movie theater but it doesn’t show many movies from overseas. A concert by an international performing artist is unthinkable.”


An overseas Vietnamese contact of mine, who returned to Saigon 9 years ago explains: “There are only two things the Government still controls: access to land and culture. If they let go of either, their days are numbered. They know this and so it will never happen – the last instruments of power.”


Saigon’s first luxury condominium tower is going up not far from the Opera House near the Saigon River. At US$8,000 per square meter, the developer will start selling units in the coming weeks – the highest price ever achieved in Vietnam. Two years ago, they would have gotten bribed by buyers to get access to a unit. In this market, they expect to sell out – “but it will take a few weeks work.” Target market: The newly affluent generation of Vietnamese. One of the partners tells me: “You can’t invest in Vietnam based on the math that works elsewhere. We looked at various pieces of land 10-years ago. The prices were so high, we could not justify the investment. No matter what we would have bought then, today’s price is at least 10x higher. Had we built this tower in Singapore, we would probably achieve just short of US$20,000 per square meter. But GDP per capita in Singapore is well over US$30,000, here it is right only around US$1,000.”


The stock market crash has also taken its toll. No one has raised any money in recent memory to invest in Vietnam I am told. Many local funds had to fire large portions of their staff or close down. Even the most renowned investment firms were at the brink of collapse. But the market has rallied 50% this year. Can it do more? Everyone hopes so – the fall was a steep one.




Daryl G. Jones
Managing Director

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