• run with the bulls

    get your first month

    of hedgeye free


Solid Sports Apparel Sales Continue

Sports apparel sales continue to improve on the margin. While the growth rate slipped to 5% from 6.9% week on week per SportscanINFO, the 3 week trend (that we really focus on) is headed higher. Mass channels took another leg down, but this is more than made up by the sports retail channel, which is showing an extremely positive trend. The last time we saw a better and more consistent growth rate from this channel was in November 2008.  Every region saw growth in YY sales, with the exception of the Mid-West region, which posted a 13% decline. As for brands, Nike remains king with double digit sales growth. Under Armour’s sales trends look particularly good on a sequential basis.


Solid Sports Apparel Sales Continue - 1


Solid Sports Apparel Sales Continue - 2


Solid Sports Apparel Sales Continue - 3


Solid Sports Apparel Sales Continue - 4

Game Time: Reflation Rotation...

Reflation Rotation is one of our Q3 Macro Themes at Research Edge.


The investment theme’s submission was simple: until the end of Q3, the US would report DEFLATIONARY Consumer and Producer price reports; and as we moved into September, we’d see the beginnings of deflation rotating towards inflation. Remember, everything that matters in our macro models occurs on the margin.


One of the main drivers of our call was the Leverage Cycle’s peak inflation report that was reported in August of 2008 at +5.3%. Since that CPI report is issued in mid-September (today), we felt that the US Dollar DOWN, Everything Priced in Dollars UP trend could continue. Today, the Buck is Burning to new YTD lows, and the US stock market is hitting new YTD highs. Check. Check…


Now it’s Game Time. Every consensus Wall Street “economist” and/or “strategist” is going to come out parroting Bernanke’s view that we have a “deflation” problem and not an inflation one. That’s what these guys do – they react to yesterday’s news and serve us with nothing useful but an accurate representation of their own revisionist history.


Why is it Game Time? Look at the 3 charts that Andrew Barber and I have outlined below:

  1. Top Chart: at +0.4% m/m, this chart shows the 4th consecutive month where the sequential rate of change in the CPI was UP
  2. Middle Chart: at -1.5% y/y (August 2009), this chart shows you that last month (July 2009) was the low for deflation (-2.1%)
  3. Bottom Chart: shows you 60 years of economic history that contextualizes the July 2009 Deflation low that’s now in the rear-view mirror

Game time occurs when we no longer have to worry about Duration Mismatch. As of the CPI report confirming our DEFLATION bottom at 830AM EST, this is it. This is when consensus morphs into monkey business. This is where you get paid.


If you have been long TIPs, Gold, or anything priced in Burning Bucks, congratulations. That should keep working until the US Federal Reserve acknowledges that this Reflation Rotation is in motion. Bernanke isn’t much of a macro forecaster, so he’ll wait until next month to confirm what I am showing here with red and green arrows in the middle chart. The green arrow confirms economic history (DEFLATION). Meanwhile the red arrow is a proactive prediction as to where reported inflation is headed next, UP.


To Summarize:


IF we are right with this proactive inflation prediction, and …


IF Bernanke is right in his asserting that the recession is “very likely” over…


THEN growth and inflation expectations will continue to signal that the Fed should raise rates from ZERO in the coming months.



Keith R. McCullough
Chief Executive Officer


Game Time: Reflation Rotation...  - a3


Game Time: Reflation Rotation...  - a4



Earlier today, management from CPKI, CKR and TXRH participated in a panel discussion in which they were asked questions about the current environment and whether the outlook was “glass half full” or “glass half empty” on varying industry topics. 


Although the restaurant operators were seemingly optimistic on the current restaurant industry outlook, I think the most important question was left unanswered.  When asked about their outlook on demand and future guest counts, they all said there was no way to know, saying “no crystal ball” and “it’s kind of a crapshoot.”   In my opinion, it is difficult to get extremely optimistic about the group until demand returns because the industry as a whole will not be able to maintain its current pace of cost cutting and as CPKI’s Co-CEO Rick Rosenfield correctly pointed out, “You can’t cost cut your way to prosperity.”


To that end, Keith McCullough shorted DRI and CKR (ahead of reporting earnings after the close today) in the Research Edge portfolio earlier today.  CKR already preannounced its fiscal 2Q10 sales and earnings so we are not expecting an earnings miss.  We will be looking at the quality of those earnings though as the company guided to relatively flat YOY margins with Carl’s Jr.’s same-store sales down 6.1% and Hardee’s down 2.7%.


Glass Half Full:

Are you glass half full or half empty on outlook for restaurant supply next year?  Each participant seemed confident that the industry is in a better place now than it was last year.  Supply has come down with fewer openings and more closures than openings.  There are great real estate opportunities now at more reasonable prices.  Construction costs are coming down a bit as well.


Can you continue to outperform if the current economic environment stays the same?  All of the respondents seemed to think they will continue to outperform.    All of them said they just need to continue to focus on the business.  Mr. Rosenfield said specifically that slowing growth has allowed the company to become a much leaner, more efficient business.


Are consumer behaviors forever changed? All three seemed to agree that we are currently in a down cycle which should be followed by an up cycle.  Additionally, people like to eat out and that will not change.


Can you retain recently implemented cost saves?  All seemed to agree that they are constantly focused on managing costs but that there is always a point where cutting costs too much will impact the customer’s experience in food quality or service.  Additionally, they stated that the current cost environment is relatively favorable as a result of lower construction costs which they intend to capitalize on while it still exists.


How do you feel about value?  All three responded that value is important and very prevalent now but that they are seeing their competitors diminish their brands by focusing too much on value and discounting.  They all think they are offering value by offering a better product for the price but are not engineering products to bring low cost items to the menu.  CKR’s President and Chief Legal Officer Michael Murphy talked about the company’s new “Big Carl” product that has double the meat than the Big Mac but costs less, which he thinks points to the type of value being offered by CKR. 


Do you have the ability to raise prices if need be?  All agreed that people are definitely more price-resistant now than they used to be.  Mr. Rosenfield commented that he thinks CPKI has pricing power, but now is not the right time to increase menu prices.  Should the cost structure change, the company will have no choice but to raise prices.


How is the credit environment faring? Mr. Murphy stated, “It can’t get much worse than it was so I would say the outlook is improving.”  Specifically, he said CKR continues to attract high quality franchisees.  He said the credit environment could potentially slow growth over time, but that it has not been an issue as of yet.


Glass Half Empty:

Do you see the level of value offers coming down?  They all agreed that they are seeing more value items now and “more desperation.”


What is your view on increased regulation?  The respondents all seemed to believe that a public healthcare plan will really hurt business and will have a huge inflationary impact.  Increased costs will lead to increased prices.  Relative to required menu labeling, they have not seen much impact but agreed that all restaurants and all businesses selling food (regardless of size) should be held to the same requirements.



SEPTEMBER 16, 2009





There were some interesting callouts from yesterday’s retail sales release (noted below), but based on the tone of questions I get in my inbox on this topic, I think there’s a big lack of understanding about the size and importance of much of this data.


First off, let’s keep in mind that Personal Consumption is about $10 trillion. Retail sales is only $3.7 trillion. Chain store sales is about $500 billion, and yes that number continues to shrink as more retailers opt out of reporting monthly numbers to the National Retail Federation. 


Not only is the gap between these three components massive, but let’s look at how the spreads therein have changed over time. As it relates to retail sales vs. consumption, there are ebbs and flows, but both the long and intermediate-term trends are headed lower. The more interesting trend is the importance of chain store sales, which were only 16% of total retail last year, but are now down to 7.8% after Wal*Mart stopped reporting. This number is shrinking, and will continue to do so.


For those looking at the government’s numbers, here are some call outs…  


  • Consistent with monthly retail sales, U.S government data confirms a sequential improvement in year over year sales trends for most subsectors in retail.
  • Subsectors with the biggest sequential improvement included: Electronics and Appliances, Clothing and Accessories, Sporting Goods, Books, Music & Hobby, and Department Stores.
  • Consistent with comments out of KR and SWY, food retailing decelerated from July.
  • While the overall headline was better than the Street expected, the interesting callout here is the consistency of improvement across most categories.  While still negative on an absolute basis, the broadest measure of retail sales continues to show gradual and steady gains. 


On a more micro level, early anecdotes on September sales-to-date suggest the improvement in trend continues.  Importantly, we’re watching for signs of sustained traffic increases which would indicate a better sense of improving underlying demand rather than year on year results driven mostly by easing compares. 











Some Notable Call Outs


  • Even though deflation and competition have consistently been issues negatively impacting the sales and margins of the traditional grocers for some time now, Kroger’s 2Q results suggest these headwinds have intensified. The company cited greater than expected deflation in dairy and perishables, the spread of deflation across more categories, price investments, a pick-up in lower margin national brand sales, and increased usage of food stamps as key drivers of the company’s disappointing 2Q results. Furthermore, sales are tracking below expectations through the first month of 2Q.


  • Despite the general fascination with all things iPhone, the ramifications of actually selling the device are a bit of a double edged sword. While units sold of the iPhone actually doubled in 2Q vs. 1Q at Best Buy with the launch of 3Gs, the company’s gross margin was negatively impacted by about 20bps in the quarter. One has to wonder how (and why) the hottest product in all of consumer electronics and perhaps pop culture is ultimately a drag to the profits of one the largest retailers in the space?


  • In an effort to survey customers and observe online shopping habits for supposed research purposes, Sears and Kmart asked participants to download “My SHC Community” software . In return, consumers received a $10 bonus. Little did consumers know, SHLD was collecting personal data including bank accounts, credit cards, addresses, phone numbers, and other personal information. Fortunately for the customer and unfortunately for SHLD, the FTC caught wind of this scheme and has since ordered the destruction of all data collected. This may be one of the biggest corporate blunders we have seen in a while.





-Affluent consumers have been hiding their luxury shopping bags and saving more money in big box stores - Big-box stores known for value are reeling in affluent consumers who have been hiding their luxury shopping bags and saving more money, according to a new study.  Eight in 10 households have been shopping at Target and The Home Depot; seven in 10 have been heading to Wal-Mart and Best Buy, and six in 10 have been visiting Lowe’s, the most widely shopped destinations in the past 12 months by people with annual household income of $100,000 or more, according to “The Ipsos Mendelsohn Affluent Survey 2009 Annual Report,” released Tuesday. But all is not lost in luxe land. Among upscale stores shopped by the affluent, the market research firm said Nordstrom has drawn the most action, visited by people in 28.3% of these households, followed by Apple, 22%; Bloomingdale’s, 9.9%; Neiman Marcus, 9.5%; Saks Fifth Avenue, 9.2%, and Brooks Brothers, 6.8 percent. Fewer of these consumers are now citing the economy as their chief “worry” — four in 10 versus six in 10 in January — and half are saying they’re “optimistic about the U.S. economy going forward,” said Bob Shullman, president of Ipsos Mendelsohn. <wwd.com/retail-news>


-Retailers and suppliers are preparing for a tough holiday season, according to a new report -The study, "U.S. Small and Middle Market Outlook 2009: Retailers and Suppliers Take Stock of Economic Downturn," found that 67% of retailers planned to stock less inventory than in 2008. The research draws on responses from two surveys, the first of 110 retail executives and the second of 104 executives at retail supply companies. Of the retailer respondents, 46% said they reduced their staff levels, 42% halted planned expansions and 29% delayed store renovations. The retailers did not have high expectations for a fast turnaround, either. While 47% of respondents believe the financial markets will improve next year, 45% believe it will take two or three years before consumer spending returns to levels seen in 2007. In preparation for the holiday season, 69% plan to expand online and direct selling, 56% plan to advertise more aggressively and 66% will offer greater discounts.  <brandweek.com>


-FTA urges EU Commission to end footwear antidumping law against China and Vietnam - The Foreign Trade Association has urged the European Commission to end anti-dumping measures against footwear imported from China and Vietnam. "Owing to the non-transparent and secretive nature of anti-dumping investigations, details of this compromise are unclear," said FTA legal advisor Stuart Newman. "However, it now looks more certain that the commission is intending to prolong the measures, rather than do the logical thing and terminate." The FTA said the majority of EU Member States opposed a continuation of the measures but was worried that more countries rather supports to extend the measures for an extra year or two instead of five years. "No prolongation, in whatever format the commission may come up with, is acceptable for European retailers and importers," said FTA secretary general Jan Eggert. "Our members have been adversely affected by these unnecessary measures and I trust that Member States will oppose any prolongation when they are called upon to vote." <fashionnetasia.com>


-Due to the flooding in a number of garment factories in Karachi, garment shipments from Pakistan to the US and EU were delayed - Advisor to the Prime Minister on Textile industry, Mirza Ikhtiar Baig, representing textile associations, has requested that the Governor State Bank of Pakistan (SBP), Salim Raza provide relief to the textile industry. In the meantime, the textile industry has been struggling to meet SBP export performance targets given that there has been global recession, gas and power cuts, and now rain and floods in the country. <fashionnetasia.com>


-Overstock launches O.biz bulk buying site - Overstock.com Inc. will launch a bulk buying site—O.biz—for businesses and consumers to buy bulk merchandise on Oct. 31. Single-character domain names are a new phenomenon and so far are rare. <internetretailer.com>


-Cherokee Q2 royalties lowered by less sales at Target Corp. and the liquidation of Mervyns - Revenues, all in the form of royalties, dropped 23.2%. Royalties in the U.S. dropped $1.1 million as a result of lower retail sales of the Cherokee brand due to the reduction of categories at Target and the absence of Sideout revenues due to the liquidation of Mervyns. Some of this decline was offset by growth of Norma Kamali volume at Wal-Mart Stores Inc., a licensing deal put together by Cherokee, and growth in smaller markets. Expecting to see benefit from the growing revenue streams of the Cherokee brand in Brazil, Chile, Peru and India, as well as the upcoming launch in Spain. <wwd.com/business-news>


-Deckers resolves lawsuits, issued a US patent for its Ugg Australia boot - Deckers Outdoor Corp. this week settled a lawsuit related to the Classic Cardy boot style within its Ugg Australia brand. The suit, filed on March 3 in the U.S. District Court for the Central District of California, alleged infringement on Ugg Australia’s Classic Cardy style by 10 separate defendants. The defendants included Aldo U.S. Inc., Tween Brands Inc., Steven Madden Ltd., Vida Shoes International Inc., Groove Footwear LLC, The Bon-Ton Stores Inc., Charlotte Russe, Kenneth Cole Productions Inc. and Skiekh Shoes. In the lawsuit, Deckers alleged, “The presence of defendants’ infringing boots in the marketplace diminishes, and is likely to diminish, the apparent exclusivity of genuine Ugg Cardy Boots, thereby dissuading potential customers who otherwise would have sought genuine Ugg Cardy Boots.” Deckers has been issued a U.S. design patent for its Classic Cardy boot. Separately, Deckers also announced that it has been issued a U.S. design patent for its Ugg Australia Bailey boot, which launched for fall ’09. <wwd.com/footwear-news>


-Kohl’s Corp. agreed to pay a $425,000 fine for selling children’s hooded sweatshirts with drawstrings - The CPSC alleged that Kohl’s violated consumer product safety laws by knowingly failing to report it sold the sweatshirts. The retailer agreed to pay the settlement but denied the allegations, according to the commission. Drawstring guidelines for apparel issued by the CPSC are designed to help prevent strangulation of children. Since 2006, the CPSC has regarded children’s jackets, sweaters and other outerwear with drawstrings as defective and posing a substantial risk to children. Under federal law, retailers are required to report to the commission within 24 hours if they receive information that a product is defective. Kohl’s paid a $35,000 civil penalty for failing to report children’s drawstrings in sweatshirts last year. <wwd.com/business-news>


-Barneys New York business as usual, or not - For Barneys New York, it appears to be business as usual — except the luxury chain remains cloaked in a heavy cloud of uncertainty regarding its future. It stems from being immersed in the recession-racked luxury arena, operating without a chief executive for 14 months, and the huge debt challenges facing Barneys’ parent company, the investment fund Istithmar. On Tuesday, David Jackson, chief executive officer of Istithmar, took a firm position, stating there are no changes at Barneys and no plans afoot for giving up on the fund’s retail holding. “We have stood by Barneys and will continue to stand by this company,” he told WWD. Jackson was responding to numerous press reports questioning the future of Barneys and its parent company. <wwd.com/retail-news>


-Adidas Gains as Morgan Stanley Says Buy Stock on Chinese Growth Prospects - Adidas AG, the world’s second- largest sporting-goods maker, rose the most in a month in Frankfurt trading after Morgan Stanley rated the shares “overweight,” citing the company’s prospects in China.  <bloomberg.com>


-Sears adds an online payment option - Web shoppers can now pay with eBillme, completing a purchase through online bill payment services. The option is available at Sears.com, Kmart.com and Kenmore.com. <internetretailer.com>


-Inditex Profit Beats Analyst Estimates on Openings From Beijing to Cairo - Inditex SA, which overtook Gap Inc. to become the world’s largest clothing retailer in the past year, reported first-half profit that beat analyst estimates, helped by store openings from Beijing to Cairo. Sales in the period rose 6.6% helped by store openings, as Inditex opened 166 stores in 35 different countries. Inditex said Zara would start offering online sales for the fall-winter 2010 season in Spain, France, Germany, U.K., Italy and Portugal, with a progressive rollout expected in all markets where the brand operates. <wwd.com/business-news>


-Prada's COO will assume responsibilities of CEO for an interim basis starting Nov. 1 - Sebastian Suhl, Prada SpA’s chief operating officer, will take over the responsibilities of president and chief executive officer of Prada USA on an interim basis, effective Nov. 1, the Italian fashion house said Tuesday. In that role, Suhl succeeds Graziano de Boni, who is leaving the company on Oct. 31 to join the newly formed Reed Krakoff division at Coach Inc. De Boni joined Prada last year, filling a job that had been vacant for two years following the departure of Constance Darrow. Suhl, who will assume the role until a successor is named, takes over Prada’s U.S. region at a time of continued economic instability and a drastically reduced demand for luxury goods. <wwd.com/business-news>


-Giorgio Armani SpA has expanded into Hungary, opening its first Emporio Armani store and Caffe in Budapest - “The Hungarian markets represents a very dynamic retail environment today where there is a growing appreciation for fashion and luxury,” Armani stated. <wwd.com/retail-news>


-Kim Clijsters picked up a significant bonus from her shoe and clothing sponsor Fila for winning the US Open - And while companies usually insure these bonuses, sources tell CNBC that Fila did not. That means the incentive money paid to Clijsters, said to be in the $300,000 range, will come out the company’s coffers. Fila spokesperson Lauren Mallon said that the Korean-owned company is private and does not disclose its contracts with its athletes. “We’re absolutely thrilled that she won and the exposure she gave the Fila brand was immeasurable,” Mallon said. It’s a standard practice in the industry for companies to insure their big incentive bonuses to minimize the risk. Given the fact that Clijsters had only played two tournaments after she retired from the tour two years ago to have a baby, the odds of her winning were as high as 40-to-1 at some sports books before the tournament started. That would have made the “win insurance” on Clijsters pennies on the dollar. At the same time, some sports marketers—given the longshot—might have been wary to insure anything. Because Clijsters had just come out of retirement, it makes sense that her contract would be heavily incentive-laden with small up-front guarantees. Fila’s biggest endorsement deals are with Clijsters and James Blake, who launched his Thomas Reynolds Collection at the US Open. <cnbc.com>


-Slingback booties are emerging as one of the hottest spring/summer trends. Whether opened up with a peep-toe at Alexander Wang and Alejandro Ingelmo or rounded off with front lacing at Cynthia Rowley and Derek Lam, the trend’s got major backing on the catwalks. Devi Kroell gave her platform slingback version a tropical vibe with candy-colored patent color blocking. Booties have continued to be a powerful force year-round, but are looking fresh again this season when they show a little skin. <wwd.com/footwear-news>







DKS: Ed Stack, Chairman & CEO, sold 442,365shs (~$9.9mm) approximately 2% of total common holdings.


RL: Ralph Lauren, Chairman & CEO, sold 127,600shs (~$8.8mm) less than 1% of total holdings including class B shares.


DECK: George Thomas, CFO, acquired 3,000shs (~$225k) via non vested stock units.


JCG: Tracy Gardner, President – Retail & Direct, sold 19,358shs (~$678k)  less that 15% of total common holdings pursuant to 10b5-1 plan.


SKS: Marc Metrick, Group SVP, sold 5,000shs (~$34k) less that 5% of total common holdings pursuant to 10b5-1 plan.



The Hard Way

“Tactics without strategy is the noise before defeat.”
-Sun Tzu
I’ve used this quote before. It’s one of my favorites. It’s taped on the insert of my trusty strategy notebook above a Sports Illustrated picture of one of my favorite winners in life, Tiger Woods.
Yes, I still use scissors, tape, and foil – ole school hockey (kidding about the foil). I have a cut out picture of Woods from the June 23, 2008 cover of SI, wearing his Championship Day red jersey, gritting his teeth, and pumping his fist, on a bum knee. The title says, “The Hard Way.”
What does Sun Tzu have in common with Tiger Woods? What role do tactics, strategy, and process play on a field of competitive battle or in your portfolio? Everything.
Yesterday’s SP500 close of 1052 was not only a higher-year-to-date high, but a stiff reminder that 55% moves in the US stock market can come The Hard Way. In 23 months, the SP500 has had a peak-to-trough crash of -57% and a trough-to-peak rip of generational proportions (+55%) to the upside.
No matter where you go this morning, there’s that score. It’s behind you. Today you are tasked with setting yourself up to earn an absolute return tomorrow. Whether you came out of this a winner or a loser, you surely gleaned something from this experience. I certainly have. Managing risk in an increasingly interconnected global marketplace of colliding macro factors can only be done one way – The Hard Way.
The Easy Way is to blame missing the market’s -57% collapse on Dick Fuld. The Easy Way is to blame missing the market’s +55% meltup on a Great Depression. The Hard Way remains not being beholden to your super “smart” friend’s consensus “ideas.” The Hard Way is beating your own path towards a repeatable investment process.
Last night, as I was flying back to New York I couldn’t help but appreciate the beautiful sun setting over the NYC skyline. One year after all of the noise, we can see who has been defeated. In hindsight, losing strategies are as crystal clear as a US Dollar inverse correlation.
I was meeting with investors in both Winston-Salem and Raleigh, North Carolina yesterday. On my flight home, I thanked God for having helped build a firm that provides me the opportunity to have constant investor feedback. If there is a variant view in the marketplace relative to the position I have taken, trust me, I see it. This has shown me that there is an Easier Way to win in this business. Being at the hub of an exclusive information network provides for better risk management.
As I look at this morning’s global macro setup and how it is most likely to translate to the US stock market, surprisingly, it’s more bullish than bearish. If I wanted to wake up trying to be a contrarian every morning, I wouldn’t allow myself to write that. Again, I have learned The Hard Way that being a mental mule doesn’t work.
So what’s changed? What’s working? What has my daily read-through make that call?
1.      The Buck continues to Burn (trading down another -0.34% this morning to another lower-low at $76.28)

2.      The SP500’s higher-high yesterday came on ACCELERATING daily volume (in the last 3 weeks, volume studies have been bearish)

3.      The VIX (volatility) remains broken across all 3 of our my investment durations (TREND line = $27.06; no support until $21.69)

Now that’s a simple 3-factor model, but it’s one that can dominate for longer than the super duper short seller can remain solvent. While I do think that a breakdown below the $74 level in the US Dollar Index puts this country’s citizenry (ABC/Washington Post Consumer Confidence dropped again last night to -49) and balance sheet in crisis mode again, until I see those real-time market prints, all I have is the monkey trade continuing (Dollar DOWN = everything priced in Dollars UP).
Three weeks ago, this 3-factor model gave the US market a head-fake (USD up + VIX up + accelerating stock market volumes on down days). That 4-day -3.5% selloff in the SP500 has been revealed as noise. The strategy that matters now is what has mattered for the last 6 months. Generational levels of groupthink (bearishness) are breaking down volatility as volume accelerates alongside everything priced in US Dollars making higher-highs.
So what are my immediate term TRADE risk management levels?
1.      SP500 support = 1029; resistance 1068

2.      Nasdaq support = 2047, resistance 2139

3.      Dow support = 9517; resistance 9778

So what if you don’t manage risk, daily? What if you don’t overlay the immediate term TRADE with an intermediate term TREND duration? How do you measure long term TAIL macro risks? What are your macro calendar catalysts - Fed Meeting next Wednesday? G-20 meetings next Thursday? Does macro matter?
These are all tactical and strategic questions that I try to find better answers to every day. The Hard Way is being mentally flexible enough to evolve.
Best of luck out there today,



GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

FXC – CurrencyShares Canadian Dollar With the USD continuing to Burn we added to our International FX exposure (we’re also long the Chinese Yuan) on 9/14 via the Canadian Dollar.

XLV – SPDR Healthcare We’re finally getting the correction we’ve been calling for in Healthcare. It’s a good one to buy into. Our Healthcare sector head Tom Tobin remains bullish on fading the “public plan” at a price.

EWH – iShares Hong Kong The 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.  

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.

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.

EWU – iShares UK We’re bearish on the UK’s leadership and monetary policy to weather its economic downturn. Although we’re seeing improved fundamentals within the country and across Europe we continue to see the country’s financial leverage as a headwind and increasingly the data suggests that inflation is getting ahead of growth. With the FTSE reaching a YTD high on 9/9, we shorted EWU.

DIA  – Diamonds Trust We shorted the Dow on 9/3.  In the US, we want to be long the Nasdaq (liquidity) and short the Dow (financial leverage).

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. 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.



Stanley Ho’s SJM Holdings saw 1H09 profit drop 40.8% year-over-year despite growing market share. The decrease came after the company paid out higher VIP junket commissions to win business.  SJM’s profit dropped to HK$338 million during the first six months from HK$571 million a year ago, but increased by 50.2% when compared to 2H08.


SJM has implemented cost cutting measures that included the shedding of 1,038 employees between December and June.  The payroll reduction contributed to a HK$369 million drop in operating expenses in the first half compared to the same period in 2008.  However, payments to junkets were not offset by these cuts; marketing a promotion expenses rose to 38.7% of gaming revenue, up from 35.7% a year ago.   

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.