Globe and Mail US states may be the next dominoes to topple over

FL: RUN This Town

FL: RUN This Town


We took a trip to RUN by Foot Locker over the weekend.  While we hope to see a more exciting store prototype in the future, at the end of the day, what we saw was a credible first effort and just the beginning of management’s efforts to revitalize and grow the chain. 


“We gonna run this town”



Over the weekend we visited Foot Locker’s latest prototype in Manhattan’s Union Square, which is called RUN.  And while there is still a long way before Foot Locker is “running” any town, let alone Union Square, we believe this is step in the right direction.  The store was celebrating its official grand opening although a salesperson noted that it was open for about three weeks.  There were a couple of interesting takeaways from the visit, a few of which we share below .


Importantly, the key components to a successful running shop were all present- performance product, customer service, and community involvement.  On the flip side, we expected a more exciting and differentiated store environment.  At the end of the day, what we saw was a credible first effort that is designed to take direct aim at specialty running shops and the performance running market.  We hope we’ll see a more exciting store prototype in the future and one that is visually differentiated and unique.  For now, it’s important to remember that this is just a one store test and it is just the beginning of management’s efforts to revitalize and grow the chain.


So what did we see?


  • The grand opening event was highlighted by window signage offering 20% off the entire store (over the weekend only).   Whether it was the discount or the store’s prime location in Union Square, the store was filled with customers.

 FL: RUN This Town - 1

  • Upon entry (front 1/3 of store), the walls to the left and right were separated by gender but dominated by Nike.  This prime real estate in the store was clearly designated to showcase Nike apparel with Nike footwear, although there were other brands integrated on the wall that fit into similar color palettes.  

 FL: RUN This Town - 2

  • The footwear walls dominate the middle 1/3 of the store, with clear signage delineating different types of running footwear (Stability, Cushioning, Trail, etc…).  From a brand perspective, most major technical running product is offered.  I observed Asics, Brooks, Saucony, New Balance, Mizuno, Nike, Reebok, Adidas, and Under Armour.  Higher end product was also well represented, making the offering more akin to a Road Runner Sports and less like a traditional Foot Locker.  There was very little product in the store that could even be construed as a fashion item.  Differentiation is clearly at work here.

 FL: RUN This Town - 3

  • Sales help was abundant and the employees were not forced to wear the traditional “Striper” uniform.  Instead, employees were wearing tight fitting compression tops in black, adorned with the RUN logo.  If rolled out, we wonder if physique will begin to play a bigger role in staffing.  Service levels were noticeable, if not aggressive.  At several times during our visit, we were approached and asked if we needed any assistance.  We did engage several associates and found that knowledge levels were surprisingly high on specific running questions.  Anecdotally, we heard salespeople explaining the merits of non-Nike footwear for true running. 
  • The back one-third of the store was the most active.  In this area, we found accessories, more apparel (including technical brands like Sugoi), the cash wrap, a community room (containing trail maps, running literature, and message boards advertising local events), and two high tech treadmills (for testing shoes and conducting gait analysis).   

FL: RUN This Town - 4


Overall, we were impressed with the overall look and feel of the store but recognize this is just a one store test.   We suspect that there will be numerous tweaks to the store model, merchandise, and in-store environment as additional locations are opened.  Importantly, we see this as just one small step in the company’s efforts to 1) differentiate the store base between concepts, and 2) build new vendor relationships beyond the core.  With no major national chain of running stores, there is a great opportunity for RUN by Foot Locker to tap into of the largest athletic footwear sub-segments.



Eric Levine


Drill Baby Drill

Long Oil via the etf USO


Surely and silently domestic drilling rates have been picking up in the United States this year.  In fact, as outlined in the chart below, oil and gas rig activity is approaching the almost all time highs of 2008.  Of the two, oil drilling has been even more robust and has in fact surpassed all time highs.


Oil rigs in the domestic United States’ last peaked in activity on November 2008.  On February 1, 2010, a new post-1993 peak was established, and as of March 12th the oil rig count is now 5% above that level.


According to the Energy Information Administration:


“Half of the overall increase in rig counts since June 2009 has been in the Permian Basin of West Texas, where rigs drill primarily conventional vertical wells. Just under one-fifth of the increase has occurred in the Williston Basin, straddling Montana and North Dakota, where horizontal drilling programs have rapidly increased production from the Bakken Shale. (These two areas also accounted for about two-thirds of the drilling during the previous peak in 2008.)”


In effect, it is back to normality for the major drilling companies.  They are executing on their historical drilling plans, and investing real capital.


From a broader supply and demand perspective, there is not a whole lot read into this activity since it is in the U.S. is a small portion of global oil production (less than 10%), and the United States exports very little of its oil (less than 5% of total production).  It does, though, speak to the confidence of oil companies that we are at a price that may be sustainable.


Consistent with drilling increasing for oil domestically, days of supply has been consistently below year ago levels for the past two months.  While oil supply domestically is at or above its five year range, it is noteworthy to see supply normalize versus year ago levels – and a bullish indicator for the price of oil.


Interestingly, also as it relates to oil is the ongoing relationship with the US dollar.  Last year, the key driver for the price of oil was the weakness in the U.S. dollar.  With a negative correlation of close to 0.85, as the U.S. dollar went, so opposite went the price of oil.  In the second chart below, we chart oil versus the U.S. dollar for the last three months.  The inverse relationship has clearly broken down.  So despite oil getting more expensive in U.S. dollar terms, it keeps going up in price, which is also a bullish indicator.


We are long of oil in here, and continue to like it.


Drill Baby Drill - 1


Drill Baby Drill - NA Rotary Rig Count


Daryl G. Jones

Managing Director

Hedgeye Statistics

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

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.67%


We’ve got some takeaways from Singapore. The good:  busy and decent table win, the less good: expensive busing may be playing a role.



Resorts World Sentosa (RWS) has been open for more than a month.  The initial read we got from our consultant this weekend was positive with a caveat.  Mass revenue per table per day looks good at between US$3,600 and US$5,300, which compares favorably to the Mass average in Macau at US$3,600.  While this should not be too surprising since RWS is operating a monopoly, a busy casino cannot be considered a bad thing.  The only thing tempering that enthusiasm is that we are hearing that the property is operating an aggressive busing from Malaysia – no doubt impacting its Highlands property - which is expensive and highly promotional.


Here are some observations: 


RWS Details:

  • Opened 2/14/10
  • 380 Mass tables, 120 VIP tables, 1,100 slots (only 850 appear operational)
  • Budget of US$5bn, up from US$3.4bn
  • Locals have to pay entry fee of S$100 per day or S$2,000 per annum
  • Foreigners pay no fee


Customer Base:

  • Visitor traffic predominately Malaysian
  • Tapping into current Highlands customer base in Malaysia
  • Aggressive and expensive busing from Malaysia
  • Local play builds beginning late afternoon



  • Roulette (20% of Mass floor) much bigger than Las Vegas or Macau
  • Baccarat only 23% of Mass floor
  • Slots more popular than Macau
  • Peak time for Mass floor is late afternoon
  • Only 250 of the 380 Mass tables are open at peak – lack of staff may be the problem
  • Due to inexperience, game speeds are very slow
  • Minimum bets are averaging around S$50
  • Win per Mass table estimated to be S$5,000-7,500 per day


As Keith alluded to in today’s Early Look, the sad part about playing this game every day is the shameless use of inside information by people trying to make money. 


We don’t have inside information but we think Mr. Macro Market is whispering in our ear.  The CRB Index and gold are breaking down from an intermediate term perspective for one reason: interest rates are heading higher. 


Last week there was a compression in our “Piggy Banker Spread”, especially with gains in the 2-year yield. The 2-year yield remains in a bullish formation* and typically when the Hedgeye model flashes a bullish formation we assume a high level of conviction on our call. 


Interest rates are going up globally!  Domestically, they are going up because we are a debtor nation and inflation is going to accelerate on a reported basis in March from February’s data.  Lastly, the dollar is in a bullish formation and last week hit at 3-week high, confirming the bullish formation on interest rates. 


From a MACRO perspective, that RHYMES because somebody knows something you don’t know.  Another thing that RHYMES today is that rumors create fear and bubbles that people are terrified of being short into!  Today’s speculation:


(1)    Pactiv (PTV) is trading higher in reaction to a rumor that it is an LBO candidate

(2)    Martin Marietta (MLM) is moving higher in reaction to rumor that private equity is interested in the company

(3)    SK Broadband rises most in eight months on merger speculation

(4)    Papandreou Says Talk of Greece Leaving Euro Zone a ‘Joke’


Shorting is difficult enough to do, never mind in a market so affected by ridiculous rumors.  Shorting due to valuation or a small earnings miss might not be worth the price of admission.  Stick with flawed business models. 


Have a great day,


Howard Penney

Managing Director


* Official definition (glossary on  A bullish formation occurs when the TRADE, TREND, and TAIL lines of support for a security's price sit below the current price, with the TRADE line closest to the current price and the TAIL line farthest below, with the TREND line in between. A Bullish Formation predicts a behavioral response by the market in which investors of different durations are driven by the price to conspire to drive the price higher through their mutually reinforcing investment activity.





Tidbits from our guy on the ground in Macau




  • Expectations are high for Wynn Encore both inside and outside the company
  • Wynn Macau is under roomed so Encore will be hugely additive
  • Details and timing on Wynn Cotai are scarce.  If there is any announcement it would be at the opening of Wynn Encore


  • Mass ramp continues at City of Dreams (CoD)
  • VIP is struggling at CoD - turnover less than Altira
  • Whispers are surfacing that CoD is pushing up commissions despite agreement with Venetian to hold rate


  • Sale of Four Seasons residences seem likely
  • Politics could complicate matters as Macau Chief Executive is under pressure to build more affordable housing
  • Real estate developers will not be happy if LVS is allowed to sell apartments on Cotai

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.