The week of the 31st through the 4th will be busy, with a large number of economic data points scheduled for release in North America and Europe (while Asia will have relatively few).  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.  


Monday August 31


North America

Q2 GDP for Canada will be released at 8:30 am. In the US, August USDA Agricultural Prices and Chicago PMI will also be released on Monday.



Eurozone aggregate and Italian CPI data for August will be released on Monday morning, as will Italian Retail Sales for July. The UK markets will be closed.



On Sunday evening Japanese Production, Shipments and Retail Sales for July, as well as August PMI will be released. Despite all the data, attention this weekend will be focused on the results of the national election as the LDP loses its grip on power after almost half a century.  


Indian Q2 GDP  will be announced on the 31st. CLSA PMI data for August will also be released in China on Monday morning, as will Japanese housing and construction data for July. The 31st will also see the release of South Korean Industrial Production data for July and trade data for August; South Korea is one of our favorite economies to follow and we expect that both production and shipments will continue to improve sequentially. Q2 Current Account Balance figures will be released by the Australian Bureau of Statistics.  


Tuesday September 1


North America

On Tuesday Morning US ISM Manufacturing and Prices reading for August will be published, as will Construction Spending for July and Domestic Auto Sales for August. Weekly ICSC, Redbook and ABC Consumer Comfort index data will also be released.



Reuters PMI data will be released on Tuesday morning for the Eurozone and its major economy components. Switzerland will publish Q2 GDP on the 1st, while Eurozone unemployment and German Retail Sales for July are also slated for release. BOE lending, mortgage and M4 data for the UK in July will be announced at 4:30 AM EST.



Glenn Stevens will lead the RBA board meeting on Tuesday morning while Australian Q2 GDP will be announced on Tuesday evening. India will announce Trade Data for July while South Korea is scheduled to release FX Reserves and CPI for August.  Japanese Auto Sales data will also be released that morning.


Wednesday September 2


North America

Factory Orders and Inventories for July will be released in the US as will Q2 productivity and Labor Cost data from the Department of Labor. Weekly MBA Mortgage application data will be released on Wednesday morning along with EIA oil gas and distillate stock levels. On Tuesday at 2PM the FOMC notes from the meeting on August 11-12 will be released.  



On Wednesday second release Q2 GDP, Household consumption, Government expenditure and Trade data will be released at 5AM by Eurostat. German unemployment data and UK HBOS House Prices for August will also be released that morning.



A fairly quiet day for economic data in Asia with Australian Good and Services for Jul and August PMI figures from Singapore are the only major releases scheduled.


Thursday September 3


North America

After a slight decline last week, the market will be focused on Initial Claims data for the week of the 28th when it is released at 8:30 AM. ISM Non-Manufacturing and Priced data for August will be released at 10 AM, while weekly Natural Gas stock data will be announced at 10:35 by the EIA (a closely followed data point in the wake of the prior week’s bearish reading). Also on Thursday morning the Treasury Department will announce 3, 10 and 30 years.



Reuters August  Services PMI for the Eurozone and its Major Economy components will be released on the 3rd, as will Eurozone Retail Sales for July. Both France and the UK will be holding bond auctions on Thursday morning (with Her Majesty’s Treasury attempting to place 2.25 GBP Billion in 30 year paper at 4.25%). A regularly scheduled ECB Rate press conference will be held at 7:45 AM.



Another light schedule with Weekly Wholesale Inflation data from India and MOF Q2 Capex data from Japan will be the primary releases   


Friday September 4



North America

Both the US and Canada release August employment and Wage data before the market opens on Friday morning, With the Canadian figures scheduled for 7AM and US data Scheduled for 8:30. At 10 AM August IVEY PMI for Canada will be released.



Italian Trade data for June and Swiss GDP for August are scheduled to be released on Friday morning.



On Friday morning Taiwanese FX Reserve levels for August will be released.


Eye on Cotton

Cotton prices are down roughly 10% over the last 10 sessions to $0.55/lb., though there’s enough vulnerability in the supply chain whereby meaningful weakness through year-end might be tough for the bears to bank on. Heading into ’10, this translates to ‘long pricing power’ and short commodity exposure. 


Stockpiles:  The most recent data point from China, released by the National Development and Reform Commission, was that China imported 131,400 tons in July, which was down 38% yy albeit a slight improvement from 41% yy declines in the 1H. This has led to a tightening of world stocks as reflected in a global stocks-to-use ratio of 51.0% in August down from 51.3% in July. In addition, there has been recent speculation that China might increase cotton volume import quotas over concerns that state stockpiles will not be able to supplement the shortage of supply. Since China is the world’s largest cotton importer, this could be bullish as it relates to future cotton prices.


Production: Global production levels are down with the U.S. at its lowest level in 11 years and estimates for India’s output (world’s second largest producer) is down 15-20% because of drought conditions.


Demand: We’re not making a bull case around global consumer demand, but we find it very difficult to make a compelling bear case. Inventories in the global system of both raw and finished product remain fairly low, healthy, and in synch with current consumer demand. Looking at all the different scenarios, we think it’s more likely than not that demand moves up over the next six months. Inventories are tight around holiday, and then wer’e looking at spring/summer ’10 where we comped against not only a horrible recession, but a weather-impacted period where many consumers simply extended the prior year’s wardrobe. There’s going to be pent up demand at some point.


If we actually start to emerge from this global recession with cotton stockpiles low, production down, and demand picking up on the margin, I’d hate to be on the short side of cotton exposure.


Of course, the theme here will be long pricing power (brands and large retailers), and short commodity exposure (Gildan and to a lesser extent Hanesbrands). It’s too early to see this play out in 2H09, but it will be an increasingly important theme in 2010.


Eye on Cotton - cf cotton 8 09

Ball Underwater: SP500 Levels, Refreshed...

This week has been a perfect week for whoever chose to sun themselves. The SP500 has done absolutely nothing.


We're grinding in a range. As we grind, the Ball Underwater metaphor applies. The next move is going to be at least 2%. Up or down, I have no idea. Monday is month end, and while it’s unlikely on this Monday, come Q4 “Merger Monday” will be back. Things to think about as you stir that drink thinking what are these guys doing in the office as it’s raining in New Haven.


Immediate term TRADE resistance is 1047 (dotted red line). Immediate term TRADE support is now 1017 (dotted green).


Have a great weekend,



Keith R. McCullough
Chief Executive Officer


Ball Underwater: SP500 Levels, Refreshed... - a1

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US Confidence: Another Lower-High...

Coming in at a reading of 65.7, this morning’s Michigan Consumer Confidence number was “better than expected.” The market hit her intraday this morning high on that narrative and has since backed off. That said, the question is why do we care what the Street’s consensus economists “expect”?


We do, but we don’t. We need them to stay in business, but we don’t need to invest alongside their opinions. Using the Street’s consensus macro expectations as a backboard for contrarian investing has been the winning strategy for the past 18 months. Long live Bank of American Merrill Bulls!


If you go back to when all of levered confidence/nonsense started (2006-2007), you’ll see our point.  In the chart below, Andrew Barber and I outline the context of lower-highs.


While it’s true that Consumer Confidence readings of 55 to 70 are abnormal relative to what we have seen in the last 30 years (we called the bottom in confidence in Q1), it’s also true that the US Consumer understands what pending stagflation means to their wallet. The only sustainable breakdowns to the 55-70 ranges in US consumer confidence have come in the late 1970’s and in the 2008-2009 period where oil prices have traded to where they have.


The US government doesn’t want to draw the red line that we have in this chart. But then again, Larry Summer and Christina Romer are running the financial side of Washington forecasting and they have started citing Wall Street’s consensus forecasts as “blue chip.”


The only blue I see in this chart is the color code separating the sad reality of the red line. Contrary to consensus Washington expectations, the American consumer isn’t stupid. Burning The Buck doesn’t get the American Savers and Consumers paid.



Keith R. McCullough
Chief Executive Officer


US Confidence: Another Lower-High... - a1


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." <>


-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. <>


-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. <>


-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.” <>


-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.  <> attack may have taught other e-commerce sites a lesson - Outsiders altered pages on 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. <>


-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. <>


-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.” <>


-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. <>


-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. <>


-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. <>


-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. <>


-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. <>


-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.  <>


-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', 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.”  <>

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