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Contrary to the run up in lodging stocks, real business trends aren't getting any better. Comps are only getting easier.



- Business isn’t improving

  • Stimulus is helping a little bit, with projects in most areas being stimulus driven.  Business isn’t improving sequentially; it just looks less bad as the comps get easier. 
  • As can be seen in the following chart, lodging trends went south in July 2008




- Banks are still looking to reduce exposure to lodging and are reluctant to lend

  • Community banks are in a really bad spot because they have higher exposure to real estate. They have been “extending and pretending” for now, because there is nothing else they can do to avoid defaults.  
  • One owner told us that when his loan came due on a mature midscale asset with 900k of NOI, the best loan he could get was 55% leverage based on a 12% cap and TTM NOI. That equates to less than an 8x EBITDA multiple (since NOI is post property level management costs) and a leverage cap of 4.5x NOI.

- Defaults on large upper upscale assets are picking up

  • We are hearing that actual defaults for upper upscale and luxury properties are accelerating although you won’t really see it advertised in the bankruptcy rags. There are many projects that are getting mothballed despite being fairly far along
    • Fontainbleau Miami
    • Greenbrier (earlier this year)
  • We wonder if this isn't partially driving the recent capital raises we've seen from the likes of HST and the coming Hyatt IPO

Per Keys are starting to look interesting to buyers

  • While per key value is only one of the many metrics we look when valuing lodging companies and assets, some of recent per keys are pretty attractive (to buyers that is) and may be low enough to get the transaction market going
    • HST sold 3 assets this July for just $56K/key. While they are not the most luxurious assets, they are still fairly attractive
    • The 120-room Former Rodeway Inn and Suites in Petersburg, Virginia was just auctioned for $600k or $5k/key ... I'm sure the property wasn't much to look at but this is probably the cheapest per key value that we've seen




AUGUST 28, 2009



  • With all tax-free holidays and 90% of its markets now back to school, SCVL is seeing considerable strength in its August same store sales trends. The company is running up 11% for the month with about 5% of the growth attributable to the calendar shift. As a result of the unexpected upside, the company is now forecasting a positive quarterly same store sales increase for the first time in 12 quarters. The athletic category is showing the strongest gains, while all departments are tracking positively.


  • With Aeropostale emphasizing logos on its merchandise and Abercrombie toning the logos down, where does American Eagle stand? It turns out that AEO management believes the customer is looking for a cleaner look with less oversized logos and blown-up graphics. Look for AEO’s assortment to have a cleaner look in knits and less pronounced branded graphics over the next season and into Spring ’10.


  • There is one clear trend that all footwear retailers are noting, and that is early signs of strength in the boot category. Retailers at all price points, from off-price to full-line department stores have noted that boots are setting up to be a key category over the Fall season. Importantly, boots carry higher ASP’s which should bode well for the industry.


  • In effort to keep inventory closely aligned with sales trends, Genesco’s Journey’s division increased its promotional cadence during 2Q. The promotional stance is also expected to remain in place through the back-to-school season. Additionally, management noted that certain canvas and core skate brands are becoming more widely distributed which is also a factor driving the promotional activity. The company went on to note, that there are no new compelling fashion trends, products, or brands that currently have the ability to generate meaningful incremental demand.


  • In one of the most substantial examples of trading down, Fred’s reported that its private label consumables business increased by 515 bps in the quarter vs. last year. The huge jump in owned-brand sales is a clear sign that the consumer remains extremely price sensitive.


  • On the company’s quarterly conference call, J Crew’s CFO was quick to point out that the much better than expected gross margin performance was due to a slightly better topline and efficient inventory management rather than from sourcing cost reductions. The company still expects that product cost reductions in the range of 3-5% will be realized over the second half of the year.


  • Demonstrating the power of the shift to online marketing and ecommerce and away from traditional paper catalogs, J Crew posted a 6% increase in its direct business while simultaneously decreasing its catalog circulation by 36%. Plans call for another 20% reduction over the back half of the year, which at this point appears to be conservative given the success of the initiative so far. As an offset to the traditional catalog, the company is testing niche mailings that are more targeted from a merchandising and customer segmentation viewpoint.





-Thailand to develop eco-friendly fibers - To cope with the ever growing environmental concern, the  development of eco-friendly fibers and functional textiles will be the future of Thai textile manufacturers, said Executive Director of the Thailand Textile Institute (THTI) Virat Tandaechanurat.This year, the Institute has conducted research on functional textile and natural fibers with funding from the Office of Industrial Economics. Two of the fibers including banana fiber and coconut charcoal blended with polyester fiber have won the Design Excellence Award 2009. Tandaechanurat said, "The new fiber could also offer cost savings as Thailand produces very less cotton but imports almost 400,000 tons of cotton and silk per year at a cost of almost 50 billion baht and ninety% of cotton used in the country is imported and this way, we will be using plants instead of petrochemicals." <fashionnetasia.com>


-Bangladesh's T-Shirts exports to Germany increasing - Bangladesh's T-Shirts exports to Germany is increasing every year thus gaining market share, according to the Export Promotion Bureau of Bangladesh (EPB). The country currently ranks third among exporters of T-Shirts to Germany behind the combined sales of EU countries and Turkey. Bangladesh shipped knitwear worth US $1.34 billion and woven garments totaling to $802 million in the previous fiscal (2008-09). Bangladeshi garment exporters expect shipments of apparels and volumes to improve in the rest of 2009, since Germany is one of the few countries which has been able to overcome from the economic crisis in the H2. Global market share of Bangladesh in terms of T-shirt shipments to Germany reached 18.47% in 2008, up from 15.33% in 2007 as compared to Turkey's share of 24.06% in 2008 and 26.36% in 2007. <fashionnetasia.com>


-Indian Export Federation demands lower export taxes - Federation of Indian Export Organisations (FIEO) has urged the country's Ministry of Commerce to offer reduce taxes incurred to its exports as a measure to increase price competitiveness. The country's exports are already burdened with the incidence of States and local levies of which in some States can be as high as 5-6% of the FOB value. FIEO is hoping that the Foreign Trade Policy should therefore announce a new scheme to rebate State and local levies on an average basis. The Foreign Trade Policy provides incentives through schemes such as Market Linked Product Scheme where benefit ranges between 1.25% to 5%. Due to very low benefit under few schemes, exporters are reluctant to benefit from it. The export benefit under all these schemes should be a minimum of 3.75% and all such schemes may be extended until 31 March 2012. <fashionnetasia.com>


-Up to 10,000 retail stores are expected to close by the end of the year - As many as 10,000 stores are expected to close by the end of this year, according to a retail report by Grant Thornton LLP. Retail distress advisers at the company’s Corporate Advisory and Restructuring Services division in New York focused in the report on what retailers can do to improve their chances of survival, specifically through financial management and process improvement. Retailers faced their biggest declines at the end of last year, Marti Kopacz, Grant Thornton’s CARS national managing principal, said in a Tuesday release. More than halfway through 2009, consumers still aren’t in the mood to open up their wallets. “Falling sales hit all regions of the country and nearly all retail sectors, challenging stores and pushing many to the brink of failure,” Kopacz said. “Either retailers are contemplating bankruptcy, have already declared it or are announcing significant reductions.” <bizjournals.com>


-Umbro is the United Soccer Leagues official sponsor - Nike Inc. said it has sold its majority ownership stake in the United Soccer Leagues to Atlanta-based NuRock Soccer Holdings LLC. In conjunction with the deal, Nike said it has reached a long-term agreement with the USL in which its Umbro brand will be the league's official sponsor and exclusive ball supplier.  <sportsonesource.com>


-Sears.com attack may have taught other e-commerce sites a lesson - Outsiders altered pages on Sears.com to make it seem like the retailer sold products for cooking babies. They took advantage of the way Sears cached pages for fast loading. Other sites may have changed their caching techniques as a result. <internetretailer.com>


-Sears to open beauty departments in 13 select Sears mall locations - Beauty departments will soon debut in 13 select Sears mall locations throughout Chicago, Los Angeles and New York. Grand openings will take place this month through September. Sears Beauty will offer shoppers a wide variety of cosmetics, skin care, bath and body and natural and fragrance products from brands such as L'Oreal, Maybelline, CoverGirl and Calvin Klein. The retailer is also the exclusive U.S. partner of France-based botanical products brand Yves Rocher. "Sears Beauty is dedicated to providing a whole new way of accessing beauty products in a personalized and approachable way," says Andrea Goldner, Sears Beauty's divisional merchandise manager. "Our goal is to help customers obtain a mix of beauty products, both in store and online, that meet their individual needs and complete their head-to-toe look." The grand openings will feature special deals, including a free cosmetic bag and brush set with any $25 cosmetics, fragrance or bath purchase, as well as a $10 Sears reward card with any $50 beauty purchase. <licensemag.com>


-Ben Sherman decides to re-continue footwear - Shortly after announcing the discontinuation of its footwear, Ben Sherman has announced it will remain in the category with a new licensing partner: London-based Hudson Shoes.“Since deciding to cease our in-house footwear business, we have had strong interest from most of the key players in the footwear sector to take the Ben Sherman footwear license,” said Ben Sherman CEO Miles Gray in a statement. “However our clear preference has been to establish a partnership with Hudson, who we feel tick all the boxes in terms of footwear expertise and full understanding of the Ben Sherman brand and its potential, and we really look forward to working with the Hudson team.” <wwd.com/footwear-news>


-Wolverine World Wide awards Australian company with rights to distribute Merrell internationally - The Australian company, RCG Corporation has been awarded the Australian rights to distribute the Merrell brand of outdoor, comfort, active lifestyle, performance footwear and apparel under an agreement with Wolverine World Wide, Inc., the owner of Merrell. The agreement is effective from 1 January, 2010. <sportsonesource.com>


-UK discount-happy department stores pressure independent retailers - Independent retailers are facing another battering from the discount-happy department stores this weekend, after hemorrhaging 0.6% – equivalent to £4.3m of sales – worth of market share by value in the three months to June 21. Debenhams ramped up its 70%-off summer Sale to include more lines and deeper discounts as well as money off new season autumn ranges ahead of the bank holiday weekend, while Marks & Spencer also launched a Sale this week, with discounts of up to 50% in an attempt to capture more holiday weekend spend. According to figures from retail research firm TNS WorldPanel Fashion, independent retailers saw their share by value fall 0.6% to 7% over the 12 weeks to June 21. The total value of the market fell 2% to £7.1bn. Womenswear sales at clothing indies were particularly hard hit, with share down 1.4% to 6.1%. This was against flat sales across the entire women’s clothing and footwear market, at £4.1bn. TNS blamed the erosion of womenswear sales at indies almost entirely on the recent promotional activity within the department store market. Key indie competitors such as Debenhams and House of Fraser have run almost continual promotions over the spring 09 season, while John Lewis has price-matched its rivals. <drapersonline.com>


-L'Oreal Jumps as Better-Than-Estimated Results Prompt Analyst Upgrades - L’Oreal SA, the world’s largest cosmetics maker, rose the most in nine months in Paris trading after posting a smaller-than-estimated earnings decline and forecasting a recovery, prompting upgrades from three banks. <bloomberg.com>


-Carrefour SA, the world’s second-largest retailer behind Wal-Mart Stores Inc., swung to a loss in the first half of 2009 - But the company, which is overhauling its operations in a bid to stay competitive, reiterated its full-year outlook, saying that it’s on track to meet its 2009 objectives. <wwd.com/business-news>


-Hermès International blamed poor returns on financial investments and currency fluctuations - The French leather goods and fashion firm reiterated its target of steady sales for the full year at constant exchange rates and a "slight contraction" in current operating income. Operating income fell 2%, as sales in the half rose 7.6%. Declines in orders for watches, perfume and tableware and ongoing sluggishness in Japan. <wwd.com/business-news>


-The Hervé Léger by Max Azria retail network is growing - BCBG Max Azria Group is expanding the label’s reach with store openings in London, Singapore and Dallas, and a relocation of its Madison Avenue unit in Manhattan. Max Azria, designer and chief executive officer, said the recession presented opportunities for growth.  <wwd.com/retail-news>


-More advertisers have pulled out of Fox News’ Glenn Beck Program, bringing the tally to 46 - The list includes Applebee’s, Bank of America, Bell & Howell, DirecTV, General Mills, Kraft, Regions Financial Corporation, SAM (Store and Move), Travelers Insurance and Vonage, per to the group's press release. Travelers Insurance, Bell & Howell and DirecTV were already on a “do not air” list for the show, though their ads appeared during the show anyway, according to the release. According to Fox News Channel's rep, however, Bank of America never advertised on the Glenn Beck Program, and Bell & Howell is not a Fox advertiser. The rep didn't give further details, but provided a statement: "The advertisers referenced have all moved their spots from Beck to other programs on the network so there has been no revenue lost." Earlier this week, Color of Change reported that 36 advertisers were pulling ads, including Clorox, Procter & Gamble and AT&T. James Rucker, a co-founder and executive director, told Brandweek that the group is closely monitoring which advertisers will stick with the Fox News after their contracts are up. Geico, LexisNexis' Lawyers.com, Progressive Insurance and SC Johnson were among the first advertisers to say that they would stop airing ads, following Beck's controversial broadcast on July 28 in which he called the president a “racist.”  <brandweek.com>


MASS IS THE WORD destination-macau.com

Although July’s visitor statistics showed that the overall market was down almost 15% year-over-year, this year’s number up 20% month-over-month and was facing a difficult y-o-y comparison with a record July ’08 figure. DM also states that it wasn’t until the middle of the month that mainlanders began “to stream across the border again” and that “August is proving to be a cracker”.

DM’s people on the ground are suggesting that the crowds on the floors look “like they do with weekend crowds”.  August is traditionally a good month, and it was only in September last year that the visa restrictions really began to bite so September will be key to keeping up the positive sentiment.


HERE COMES VML destination-macau.com

The Venetian is going to be looking good once month-end numbers come out.  VML (Venetian Macau Limited) can absorb the kind of volume it is seeing recently with ease and the timing is perfect for the operator.  Steve Jacobs, president for Macau, has been doing an impressive job cutting costs and ramping up revenue.  A local news outlet reported that 1,000 (speculation is that it could be as many as 3,000) people had been let go since Jacobs came on board, including people transferred to Singapore and to City of Dreams. 

Meanwhile, revenue is increasing.  DM suggests that US$1 billion in EBITDA could be possible at the three Macau properties over the next twelve months.  DM sees LVS as having a lot of potential; there is a possibility of an IPO in the near future, loan covenant pressure could be alleviated, possible assets sales and also a superior lodging product among the current “sordid” hotels on the peninsula. 


WHO’S A DIRTY ROTTEN SCOUNDREL, THEN? destination-macau.com

Allegations are already flying around among Macau concessionaires regarding who is breaking the previously agreed junket commission cap of 1.25%.  Some are claiming others are offering 1.4%, others that 1.25% plus a 0.2% bonus is being offered. 

It is difficult to know if Melco-Crown is involved in such behavior, but the rumor certainly is out there. It could be true, or it could be junkets trying to stir the pot in order to get other operators to raise their commissions in retaliation.  Junkets like Dore and Sun City are teaming up at the Lan Kwai Fong hotel to form a revenue share deal with SJM.  While the rooms at Lan Kwai Fong Hotel can’t compete with WYNN’s the margins are certainly juicier there, especially on mass play.


WYNN WILTING? PUH-LEASE! destination-macau.com

Wynn’s IPO application is being reviewed by the HKSE September 10, and could launch the public offering as soon as October.  Some competitors are taking pleasure from the recent market-share numbers which show Wynn falling down the pecking order.  City of Dreams, MGM Grand, and StarWorld are going after Wynn and his biggest junket operator is setting up show at the Lan Kwai Fong hotel.  That’s not to mention that L’Arc is opening up across the road.

DM believes that Wynn is not going to get involved in a discount war, seen as it is a five-star property, and that EBITDA is what counts – not revenue.  Encore opening up in the second quarter of next year will raise the bar on the luxury gaming experience in Macau.


SJM: BIDDING WAR TO COME? destination-macau.com

DM is quoting “Wife No. 3” in saying that Stanley Ho is not going to leave the hospital any time soon. Bankers are starting to consider the possibility of a bidding war breaking out for control of SJM Holdings, the HK listed owner of Sociedade de Jogos de Macau, the gaming concessionaire.

Should Stanley Ho concede all of his voting right in STDM, which owns 61% of SJM Holdings, it would still be insufficient to ensure a result at an EGM if one were called to replace Dr. Ho.  The remaining decision makers, Ho's sister Winnie, the charitable foundation of the late Henry Fok and tycoon Cheng Yu-tung are unlikely to simply choose a contender from Pansy Ho, Lawrence Ho, Angela Leong. Therefore, control will likely be gained by whichever party wants to step up the plate and put forth the highest offer. 

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Numb Is The New Deep

“Numb is the new deep, done with the old me, and talk is the same cheap.”

-John Mayer


From George Carlin to John Mayer, we’re finding ourselves some new ideas this week. I am industry agnostic. I am looking for professional thought leaders who are right  - not those crusty “strategy” dudes on the sell side who get paid to report yesterday’s weather.


Mayer likes to make calls on the weather. From his song, The Remedy, Mayer will remind you that  “you can turn off the sun, but I'm still gonna shine.” He grew up close enough to Wall Street people (in Fairfield, CT) to understand this gong show, and he seems to be striking a strategic chord with where all the US market group thinkers are at right here and now. The metaphor is dead on - this market is numb.


To mix a little Research Edge with some PIMCO and Mayer, Numb is The New Reality, the “New Normal”, and the “New Deep”. Top to bottom (on a closing basis) the SP500 has traded in a 5 point (1025-1030) range this week. This is also The Grind.


Yesterday I explained that The Grind perpetuates the inertia of a Ball Underwater. Once we get through month end for August (Monday), I’m looking for a big move. That Ball Underwater is going to move to the bull or bear side, big time.  The US Dollar is going to decide the direction.


Unlike some, I don’t wake up looking to be bullish or bearish. Some market psychologists have labeled that “confirmation bias”, and I think they are spot on with that. In a global market place whose factors are as increasingly interconnected as this one’s continue to become, you have to be thesis agnostic. As the facts change, you should.


As I look across the global macro factors in my notebook this morning, more of them are color coded green.


Green is good. Red is bad. The market is numb.



What’s flashing green?


1.       The US Dollar failed to breakout through the immediate term TRADE line yesterday ($78.58); it backed off hard, and REFLATION took off


2.       Daily Risk/Reward for the SP500 this morning moves from negative to neutral (1012 support versus 1049 resistance)


3.       The SP500 made a higher-YTD-high yesterday at 1030 on accelerating daily volume (day over day volume was +14%)


4.       The VIX (US Volatility) continues to trade below the immediate term TRADE line of 25.09


5.       All 9 SP500 sectors in Howard Penney’s Sector Views continue to flash positive TRADE and TREND


6.       Asian markets, away from the Chinese local A-shares, continue on their bullish path making higher-lows on all selloffs


7.       Western European equity markets are up 1-1.5% across the board, led by Germany, trading up +1.4% at +15.4% YTD


8.       Eastern European equity markets are up double the West Side, being led by Poland, trading up +2.8% after posting POSITIVE +1.1% y/y GDP for Q2


9.       3-month LIBOR (the rate over which the world lends) is hitting another YTD low at 0.36%! (yes, that’s a ZERO)



What’s flashing red?


1.       The immediate term range of the SP500 continues to expand; now at 74 points wide versus last Friday when it was 40 points


2.       The US market’s breadth continues to deteriorate as we hit new YTD index highs (advance/decline line yesterday was +54% to -44%)


3.       China closed down -2.9% on the Shanghai Composite last night, breaking down through my intermediate term TREND line of 2,959


4.       Japanese unemployment spiked +30bps m/m to +5.7% from +5.4% in June


5.       Oil and copper prices are testing YTD highs again this morning; this assures us that we will see Reflation Rotation (into y/y inflation in Q4)


6.       UK Consumer confidence for August didn’t budge; at -25, the report is in-line with last month’s



What’s making this market numb?


1.       Money


A)     The US Federal Reserve’s Balance Sheet expanded for the 3rd consecutive week to $2.07T (that’s TRILLION)


B)      On a year-over-year basis, the Fed’s Balance Sheet has expanded by $1.2T (that’s TRILLION)


C)      M2 (money supply) growth is now running +8.5% annualized


Money, money, money… as John Mayer wrote: “Never, ever underestimate the power of I’d like that.”


Whether it’s a $16B US Madoff fraud or a $2.07T Balance Sheet, a “B” of this and a “T” of that ain’t what it used to be. Neither is a US Dollar. After the most expedited short squeeze in modern US market history (+52.4%!), this market is numb to it all at this point…


Was it Ben Bernanke or Alan Greenspan who said that the “MAX” that US Money Supply should grow is +5% year-over-year? Was it Ben or Alan who called this a Great Depression first? Was it some dude in Poland or the Philippines who just put up his hand in the last 48 hours calling out that their respective countries are still running positive GDP growth in that said Depression?  Who cares when we’re numb right…


“Numb is the New Deep” and Wall Street to Washington market strategy “talk is the same cheap.”


Have a great weekend with your families,




  • 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.




  • LQD – iShares Corporate Bonds – Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates that bonds will give some of that move back. Shorting ahead of Q4 cost of capital heightening as access to capital tightens.


  • 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.


Forecasters were surprised by Q2 GDP data released in the Philippines today as the island nation’s economy grew by 1.5% on a year-over-year basis driven in large part by government stimulus.




Incremental improvements in smaller South Asian economies like the Philippines, Thailand and Malaysia are sending clear signals that demand is strengthening throughout the region as low relative rates help coax increased consumer spending and capital investments despite continued malaise in many exports markets in the west. Resilient demand from China is also moving the dial as exports and re-exports bound for “The Client” make up an increasing portion of total foreign trade (see the chart below showing US & China bound Exports as a % of Philippine total shipments.




Although we do not take positions in smaller economies like the Philippines, we follow them closely looking for signals and confirmation for our regional investment thesis.


Andrew Barber



Today’s Initial Claims figure registered at 570K, down 10K from last week’s revised level but still higher than the four week moving average by almost 4k.


The rising trajectory of Claims figures since July has fueled increasing discussion of the “jobless recovery” thesis that many bears have been promoting.  We are not entirely opposed to this thinking: while unemployment and sentiment have improved sequentially as we had expected over the first half, we now believe that there is as high a probability that both will begin to deteriorate as there is of a continued improvement from here and, on the margin, this is both new and negative.


Note that from our view, the perverse mechanics of dollar degradation make it possible that converging negative factors like this can actually be a positive catalyst for US equities if they drive the dollar lower and foreign buyers take advantage of the discount.


Andrew Barber