Barclays Capital's Maki Discusses Outlook for Inflation

Two-Horse Toning Race Update

The two horse race between Skechers’ Shape Ups and Reebok’s Easy Tones continues (albeit it’s still early in the race), with a bit of a post holiday pause in momentum.  The latest data for the month of February suggests that sales recently peaked in December for both brands, although we’re beginning to see a slight ramp as the Spring season begins.  Anecdotally, retailers have suggested that inventories have been low, especially for Reebok, coming out of 4Q.  As result, sales have likely been constrained by out of stocks and broken assortments.  New shipments are expected to hit retail shelves in over the next few weeks. 


With less than a year into the wellness/toning trend, it is still too early too tell how long this newly defined footwear category will continue to grow.  Importantly, even with early signs of lower-priced competition entering the marketplace (Payless, GH Bass, Avia, LA Gear) we are seeing ASP’s hold steady for the two leaders in this 8 month old category.  Pricing stability continues to be something we’re watching closely as a key sign of any change in demand.  For now, there are no marterial signs of discounting impacting either of the two brands.



Two-Horse Toning Race Update - SKX 3 10 Easy Tones and Shape Ups     and Units Chart


Two-Horse Toning Race Update - SKX 3 10 Easy Tones and Shape Ups ASPs chart



- Eric Levine


The Week Ahead

The Economic Data calendar for the week of the 22nd of March through the 26th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - cal1

The Week Ahead - cal2


We have very healthy degree skepticism of Government, Politicians and the market’s current levels….


Market sentiment:

(1)    Our daily Hedgeye Risk management models have been to the negative side all week.

(2)    Volatility is broken on all three durations - TRADE TREND and TAIL

(3)    We have moved higher in the S&P500 this week with both fear and complacency


The economy:

(1)    February’s inflation data is misleading - March CPI will see an acceleration from February

(2)    The balance sheet of the US is no different than the other P.I.G.S.

(3)    Market rumors of LBOs and the like are reminiscing of 2007


Interest Rates:

(1)    Are headed higher - exceptionally low is unreasonable

(2)    The high yield market is at levels not seen since 2007

(3)    Today’s move higher in treasury yields is scaring the horses



(1)    Oil prices are at levels not seen since Q408’ (bullish TREND)

(2)    Copper prices continue to be in a Bullish Formation (bullish TRADE, TREND, and TAIL)

(3)     Gold prices continue to break down in anticipation of higher bond yields (bearish TREND)


The consumer:

(1)    Obama’s approval rating is at all time lows (Rasmussen was -21 today!)

(2)    Consumer confidence is stuck at very low levels (last week’s University of Michigan survey made a lower-high)

(3)    Job creation is anemic


I guess that’s why Keith runs a 27 factor risk management model.!


Have a great weekend,


Howard Penney
Managing Director

VF Loss is PSS's Gain

This is the second time this week we’ve seen a top leader depart VFC’s most profitable Action Sports business. It could be coincidence – perhaps not, but at the very least it’s notable.


In today’s news Bill Bettencourt, previously the VP of Product and Marketing at Vans is joining Sperry Top-Sider. Tuesday it was Steven Murray President of VF Action Sports leaving to head the Urban Outfitters Brand. Top talent getting bid away simply happens at good companys, but two in a week will have an impact VF.


An important note is the addition of Bettencourt at PSS – it’s a move that’s tightly aligned with the company’s strategic plan to become more relevant with America’s youth. Top-Sider is a great brand with strong ties to the 30+ demographic, but has struggled to resonate with younger consumers. The addition of a VP of Product from one of the more relevant brands in that demographic over the last 10-years is certainly a step in the right direction.



Casey Flavin



The Macau Metro Monitor, March 19th, 2010



Analysts at Citi believe gaming revenue for the first 16 days in Macau reached ~MOP 7.5bn, up 58% from last year. Assuming the current run-rate, Macau's gaming revenue could reach a new high in March of ~MOP 14.5bn.The firm said SJM is the only winner in terms of market share gains for the month; Wynn, MGM and Melco-Crown have lost 1% each in market share in March so far versus February.



After the release of the report by the New Jersey state attorney general's Division of Gaming Enforcement connecting Stanley Ho Hung-sun to organized Chinese crime, MGM CEO Jim Murren made these remarks:

"The DGE's report acknowledges there is no evidence that Pansy Ho has engaged in any wrongdoing or been accused of any illegal activity. MGM Mirage structured its business relationship with Pansy Ho to ensure the highest standards of operation and compliance with all applicable gaming laws and to protect against any improper influence. We have had a very positive working relationship with Pansy Ho and have a spotless operating record at MGM Grand Macau."


According to the report, throughout 2001, with its eye on one of the three casino licenses to be awarded upon the opening up of the Macau market, MGM held talks with New World Development chairman Cheng Yu-tung about a joint bid.The report says Cheng and Chan Siu-hung already operated three VIP rooms at Stanley Ho's casinos, and MGM explored a partnership in which the US firm and New World would each take a 40% stake and Chan the remainder. However, negotiations fell apart and when the three winning bids were announced in February 2002, MGM had come in fifth. "We licked our wounds for a bit and then tried to analyze whether there were any other opportunities for us to enter the Macau market," former MGM executive vice-president and general counsel Gary Jacobs told the DGE investigators.


In April 2002, Stanley Ho along with business associates and family members including Pansy Ho and Daisy Ho, traveled to Las Vegas at the invitation of MGM. Stanley Ho had dinner with Wang, MGM's then chairman and CEO Terrence Lanni and billionaire Kirk Kerkorian, the report says. Stanley Ho agreed to continue negotiations and appointed Pansy Ho as his representative to broker a deal with MGM. The aim was to create a 51-49 joint venture to be led by Shun Tak Holdings, where Pansy Ho was managing director.


By July 2003, Pansy Ho and Lanni had exchanged formal letters acknowledging the structure and basic terms of the proposed joint venture.But the following month, MGM executives including Lanni and Jacobs were called to a meeting with Nevada Gaming Control Board member Bobby Siller, who informally advised them regulatory approval from Nevada would be a "very difficult path" and said he would not approve any Macau partnership that involved Stanley Ho or his firms Shun Tak, SJM or Sociedade de Turismo e Diversoes de Macau (STDM).


New Jersey was never MGM's main market, but the firm was Nevada's biggest taxpayer and the largest private employer in Las Vegas. Stanley Ho "was upset by the news", Jacobs told New Jersey investigators. But in November that year, MGM was negotiating a new and separate partnership with Pansy Ho directly, in her individual capacity.

The new joint venture between MGM and Pansy Ho was formally agreed in June 2004 and called for an initial cash contribution of US$360 million. MGM executives were worried that US regulators would take umbrage if Pansy Ho received her share of the funds from her father.


MGM increased its contribution to the venture by US$100 million "as a 'premium' to Pansy Ho for the ability and opportunity to be in business with her in Macau", and thereby reduced her share of the burden by US$50 million, the report says. So Pansy Ho's initial contribution was US$80 million, and the report concludes that US$72 million, or 90% of that, was tied back to her father. The partners purchased a "subconcession" casino license from SJM in April 2005 for US$200 million.


The DGE report concludes: "MGM's compliance failings ... were pervasive and persistent, suggesting that the company's fervour to [enter] Macau compromised its commitment to regulatory compliance." The Nevada regulators unanimously approved MGM's partnership with Pansy Ho in March 2007.



In 2009, Macau's GDP grew by more than 8% with a near 10% increase in casino revenue. With a budget surplus of nearly MOP 24BN, CEO Chiu has maintained his predecessor's policy of cash handouts to everyone.  Chui intends to give out bonuses of 6,000 patacas for permanent residents, 3,600 for non-permanents and a subsidy of 5,000 for the elderly enable people. In January 2010, it injected 10,000 patacas into the central provident fund accounts of 330,000 residents aged over 22. Although continuous cash handouts will represent social value, they are not the long-term solution to the social side effects of a gaming economy, including the wealth gap, inflation, high housing prices and illegal workers. The financial crisis was a reminder that Macau must rethink its social priorities and develop a broader economic strategy. Focusing on the development of education and tourism infrastructure would do a lot to improve skills and create jobs.



Hainan, China's only tropical island, will not follow Macau's example of becoming a gambling hub, according to Tan Li, vice governor of southern China's Hainan Province. With aspirations to be a top tourist destination, Hainan will focus on developing its lush tropical gardens to become an "all-seasonal" hot spot.

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