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It’s no secret that Australia is one of our favorite economies. With sober monetary policy as well as commodity resources and a strategic geographical location in the Asian supply chain that provide competitive advantages in meeting Chinese demand, the land down under has managed to sidestep recession. Although, at 5.8% SA, unemployment remains historically high and the construction and financial sectors continue to face challenges; in comparison with the rest of Developed Asia (or the Developed economies globally for that matter) Australia appears to be enviably positioned –a fact reflected in consumer confidence measures that have rebounded to levels not seen since 2007 in recent months.  


This relative strength has been reflected in the markets. After a Q2 reporting season that was without major surprises the ASX All Ordinaries has continued to outperform US equities with YTD performance of almost 29% VS.  18% while, in the wake of Governor Stevens tightening  signals, the Australian Dollar has continued to outpace the greenback with the Aussie now up 25% YTD (making the USD investment performance for the ASX  over +60%).


On an absolute AUD basis, the trend in exports continues to improve across the commodity spectrum as Chinese demand has remained resilient in the months since the Beijing stimulus program was initiated (see first chart below). This picture is clouded by the relative late ABS reporting schedule and the impact of currency strength on a relative basis versus the competition (see second chart), but all unofficial data sources and channel checks continue to support the trend.  Regardless of the positive impact of demand from “The Client”, the year-over-year compare will continue to be brutal until October –last year’s high water mark for shipments (see third chart).








We will continue to follow Australia closely and will look for opportunities to resume long exposure to either equities or the currency as dictated by price action.


Andrew Barber
Director or


In our power rankings of stocks in the QSR restaurant universe, SONC is the most under loved name next to SNS, a name which hardly anybody cares about.  


SONC, MCD, JACK and BKC are the only QSR names that are down on a year-to-date basis.  The rest of the group is up over 50%.  Of these four names, I’m more favorably disposed to JACK and now warming up to SONC.  




SONC reported fiscal 4Q09 system same-store sales growth of -4.5% with partner drive-ins down 5.4%.  Sales trends at the partner drive-ins have been significantly underperforming the franchise drive-ins for the last 5 quarters and although partner drive-ins improved 230 bps sequentially from 3Q09 on a 1-year basis, the 2-year average trends continued to decline slightly (though they appear to be stabilizing).  The reported flat traffic result is somewhat impressive relative to the current environment, but average check declined 4.5% YOY, similar to the 4.9% decline in 3Q09. 






SONC attributed its flat traffic number to the success of the company’s Everyday Value Menu, which was implemented in 2Q09.  The Everyday Value Menu is also accountable for the decline in average check.  Restaurant level margins started to decline prior to the introduction of this value menu to the tune of about 400 bps in both 4Q08 and 1Q09.  The value menu already accounts for 10% of sales but its negative impact on margins was somewhat offset in 3Q09 as a result of the company’s refranchising efforts.  Restaurant level margins most likely declined again in 4Q09, though to a much lesser degree than the 200 bp decline in 3Q09, as a result of the July minimum wage increase and the expected increase in food costs as a percent of sales.  This increase in food costs as a percent of sales is being driven by the lower margin Everyday Value Menu because commodity costs were expected to be down YOY in the fourth quarter (lapping the 4Q08 180 bp increase in food costs as a percent of sales).




SONC guided to improved restaurant level margins in fiscal 2010, which would be encouraging after five reported quarters of rather significant declines.   This guidance also assumes flat partner drive-in same-store sales, which implies an acceleration in sales trends on a 2-year average basis.  Although the company is relying on the full-year benefit of it 2009 refranchising activity and lower commodity costs to drive restaurant level margins higher, we have yet to see any recovery in SONC’s 2-year average partner drive-in comparable sales trends (though they are not getting worse).  And, if the value menu continues to grow as a percent of sales, it will continue to put pressure on average check and food costs as a percent of sales, offsetting some of the YOY commodity cost favorability. 


From an operating margin perspective, the company’s expectations for significantly lower YOY SG&A and D&A expense as a result of refranchising efforts should lead to better operating margins in fiscal 2010 even if restaurant margins don’t prove as favorable as expected.


On a separate topic, SONC also announced that it has implemented a program intended to encourage franchise openings in fiscal 2010.  Part of this program is likely to include lower required average franchise fees per new franchise opening.  The company is still guiding to 100-110 franchise openings in 2010, but this type of change signals a decrease in franchise interest.



SEPTEMBER 17, 2009





You gotta love when a retail concept is so powerful that it grants select consumers the privilege to shop at its store.  These little start up retailers seem like noise right now…but the strategic implications are meaningful.


I was whipping through overnight news early this morning as part of my usual routine, and I was interrupted by receipt of a critical email. Gilt.com notified me that it had accepted my request to be part of the ‘chosen’ group of customers that has the privilege to shop its site of luxury off-price goods (after I ‘applied’ a week ago). I kid you not. We’ve mentioned gilt.com a few times in recent weeks, and it will certainly be mentioned a lot more as it goes public. If there’s one thing I am certain, it is that this is a BIG deal.  Is it not just about gilt.com. It’s also about…


Ruelala.com-off price, some luxury, generally higher end, limited time sales, subscriber based

Yoox.com (going public)- Italian company, fashion driven, expected to come public by year end on Italian bourse

Netaporter.com – Ultra high-end women’s luxury apparel with massive breath of designers


Saks, Neiman, Nordstrom…you guys paying attention? I can tell you that designers like Ralph Lauren are, and unless you ‘get it’ you will increasingly look like a dinosaur.


And mind you, this is NOT just about the high end. Amazon is the most obvious mid-tier callout. Just weeks before buying Zappos, they launched an Outdoor store (incl apparel). Then with Zappos (which was a huge deal) they also acquired the clothes.com domain.  Now we’re seeing ads like the one below marketing apparel specifically, and to cap it off, major brands admit  that they need to make product specifically for Amazon.


My point here is that when a new bricks and mortar store opens, we can pretty accurately gauge its market opportunity based on local demographics, and sheer physical productivity constraints. But a well-executed .com store is limited only by back-end fulfillment.  These stores – and the countless sites yet to be announced will absolutely have capacity implications. So those of us that are banking on the ‘shrinking capacity due to bankrupties’ thesis might want to tweak our thinking.


My prediction continues to be that valuations for anything with a powerful consumer-direct business (ie WSM, JCG) will continue to defy gravity. The legacy retailers will be on the prowl. Many of these upstart initiatives will be taken out before they come to market.






Some Notable Call Outs


  • When speaking at a conference, Delta Apparel CEO Bob Humphreys described the inventory levels at retail as “lean” for the segments the company operates in (primarily casual activewear). However, the one area where Humphreys sees heavy inventories in the undecorated t-shirt business (blanks) where he believes wholesale inventories are still high. He went on to say that retailers have not been as aggressive in managing screen tee inventory as they have been in most other apparel categories.


  • Casual Male CEO, David Levin, does not see any further opportunity to cut inventory levels from here and sees a likelihood that inventory actually ticks up. However, the company is currently planning inventories flat for next year.


  • Add Dress Barn to the list of retailers with substantial lease action opportunity over the next twelve months. The company will attempt to negotiate approximately 25% of it leases over the next year and expects rents to remain flat to down relative to current terms.


  • The opening a Tommy Hilfiger flagship store on 5th Avenue in Manhattan is either a sign of the brand’s resurgence or the worst timing in history for opening high cost real estate. The store occupies 22,000 square feet in the former Fortunoff location.


  • Does anyone pay full retail for a book anymore? Only one day into record sales of Dan Brown’s, The Lost Symbol, and one can find the book on sale for $14.38 at Sam’s Club and $16.36 at Costco. On Amazon.com the book sells for $16.17 (plus free super save shipping) and for $17.97 ($16.17 with loyalty card) on barnesandnoble.com. While the pricing clearly varies, the percentage off of full retail for bestsellers now appears to be 40-50%!





-Americans Plan to Limit Spending Amid Concern About Economy, Survey Shows - Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signaling concern about the direction of the economy over the next six months. <bloomberg.com/news>


-Retail apparel prices increased a seasonally adjusted 0.6% year over year and sequentially declined 0.1% from July - Women’s apparel prices fell 1.3% in August and declined 1% compared with a year earlier. Men’s apparel prices increased 0.3% in August, but dropped 1% in 12-month comparisons. August retail prices allayed some fears that most retailers would be forced into discounting to survive. However, not every apparel category was able to avoid discounting. More fall and winter women’s merchandise than was typical hit the racks already discounted, which lead to a drop in prices for many items, said Malinda Harrell, an economist with the Labor Department. <wwd.com/business-news>


-CPI and back to school season - The back-to-school season did help drive girls’ and boys’ retail apparel prices up as merchandise hit store floors at full price. Girls’ apparel prices increased 5.1 percent in August and advanced 3.8% year-to-year. Boys’ apparel prices rose 2.3% in August and spiked 7% compared with a year earlier.  <wwd.com/business-news>


-If Abercrombie & Fitch Co. has its way, Beyoncé Knowles’ recently announced fragrance may not be too fierce - Abercrombie & Fitch Co. wants to block Beyoncé Knowles from launching a fragrance under the name of her alter ego, Sasha Fierce, in her deal with Coty Inc. The teen retailer alleged in a federal complaint filed Tuesday that a scent with that label would infringe on its own Fierce cologne trademark. But Coty said Wednesday Knowles’ dual personality would not factor into plans for her perfume, which will be sold in department stores globally and launch in the Americas in the spring. “We can confirm at this time…that the terms Fierce and Sasha Fierce are not being used as names of a Beyoncé fragrance,” a Coty spokeswoman said. <wwd.com/business-news>


-Ikea Says Its Sales Growth Slowed to 1.4% During `Challenging' Year - Ikea Group sales growth slowed last year to 1.4 percent as the world’s biggest home-furnishings retailer faced what it called a “challenging year.” <bloomberg.com>


-Carlyle-Backed Xtep May Acquire Sportswear Brand Outside China Next Year - Xtep International Holdings Ltd., a Chinese sportswear company partly owned by Carlyle Group, may buy a foreign brand as early as next year to boost sales and profit margins, Chief Financial Officer Terry Ho said.  <bloomberg.com>


-Uniqlo founder Tadashi Yanai said he’s got bigger plans: to revolutionize the way consumers buy clothes - “When I was young, Brooks Brothers, Polo Ralph Lauren, [Giorgio] Armani — those brands really were changing the world,” the 60-year-old executive said in an interview at Uniqlo’s brand new showroom atop its Ginza flagship. “But after that, no one else has managed to do the same thing. We want to be a brand that really changes the world.” To that end, Uniqlo, a brand known for innovations such as selling T-shirts in plastic tubes and creating a fabric that retains body heat, is going global. Yanai said Uniqlo plans to open 100 to 200 stores a year outside Japan. Two weeks ago, Fast Retailing outlined an audacious plan to grow its sales from the 682 billion yen, or $7 billion at average exchange, forecast for the year ended Aug. 31 to 5 trillion yen, or about $54 billion, by 2020 through a combination of international and domestic expansion as well as acquisitions. Even though sales have more than doubled over the past six years, the company still has a long way to go to reach that target. “We would like to become a more global company,” said Yanai, a few hours after unveiling Uniqlo’s first footwear collection, a Japan-specific lineup of ballet flats, Ugg-style boots and other styles. <wwd.com/markets-news>


-Joe's Jeans warned of potential delisting from the Nasdaq if shares don't climb to $1 - Joe’s Jeans Inc. said Wednesday it has been warned by the Nasdaq Stock Market that the company’s shares are in danger of being delisted if they don’t climb to $1 or more. The stock of the Los Angeles-based premium denim producer fell 2 cents, or 2.2%, to 75 cents Wednesday and hasn’t closed above $1 since Oct. 1. Joe’s ran afoul of Nasdaq rules because its shares failed to close at or above $1 for 30 consecutive trading sessions. The company has until March 15 to regain compliance by closing at $1 or more for 10 consecutive trading days. If the company is still below the required price by the March deadline, it could be granted an extension of 180 calendar days to move its stock up or make an appeal to Nasdaq. <wwd.com/business-news>


-Brands brands are finding retailers hungry for new product and a bit more confident about business prospects - Those launching lines now, amid the first tentative steps out of the recession, might be catching things on the way up. Although expectations are tempered by a heavier dose of realism as a result of the global downturn, the recent round of trade shows in Las Vegas have left new brands feeling there’s still much opportunity in the market. Brands tended to use the same fabrics and same laundry facilities, resulting in a sea of five-pocket premium jeans retailing for $200 with the main difference in the labels, embroidery, stitching or other minor detail. Daniella Siri started Recession Denim in April and has gotten the line into more than 60 stores, including Bloomingdale’s, with retail prices of $80 to $100. She’s had little trouble getting meetings with store buyers and believes the price for the level of quality she’s providing is hitting the right chord. <wwd.com/markets-news>


-New Balance launches new ad campaign with new agency - In its first big initiative with Mother, its new agency of record, New Balance has emerged with a campaign that is both small-scale and high-concept. The “574 Clips” Web/video project was created for a limited-edition line of 574 sneakers, produced in the company’s Lawrence, Mass., factory using surplus clips of fabric. Also contributing to the title is a series of video clips that began airing online this week at 574clips.com and show the unique and sometimes odd experiences of each pair of shoes. Fans who purchase a pair at one of 10 boutiques nationwide can then claim their shoes online and have their name posted at the end of the video. According to New Balance, the campaign (and classic kicks) are targeted to sneakerheads and will be promoted through blogs including Hypebeast, High Snobiety and Nice Kicks. <wwd.com/footwear-news>


-Sport Supply Awarded US Communities Contract - Sport Supply Group, Inc. has been awarded the U.S. Communities Contract to act as the exclusive supplier of sporting goods, physical education equipment and uniforms for the program for the period October 1, 2009 to September 30, 2014. The agreement also includes a provision for two potential extension years. <sportsonesource.com>


-Russell Athletic plans to close a distribution center in Columbus, OH, laying off 112 people - According to the Columbus Ledger-Enquirer, the Georgia Department of Labor has been notified of the closure, which is effective Nov. 9. <sportsonesource.com>


-Luxury brand Burberry will launch a social networking site next month - The site, artofthetrench.com, will initially feature users sending in pictures of themselves wearing Burberry trench coats. The retailer said it already has more than 660,000 fans on Facebook. Chief executive Angela Ahrendts told the Financial Times: “These might not even be customers yet. Or they may be a customer for a bottle of fragrance or for eyewear. But these are the customers who need the brand experience, who need to feel the brand. That word-of-mouth spreads through their social networks and continues to be a positive conversation [about Burberry]… that is so powerful.”  <drapersonline.com>


-YOOX moves ahead with plans for an initial public offering - Though key details have yet to be released, including the number of shares and the price per-share, YOOX has made a formal request to be listed on Borsa Italiana SpA, the Italian stock exchange. <internetretailer.com>


-Zappos.com is the most consistent in August - The top 49 retail web sites measured last month had an average site availability rate of 92.17%, according to Gomez. <internetretailer.com>


-PacSun.com puts a battle of the bands online - Local bands vie for a spot on the PacSun.com concert tour as fans view and vote on uploaded performance videos on the e-commerce site. <internetretailer.com>


-Eddie Bauer revived, rolls out new outdoor collection - The active outdoor lifestyle brand Eddie Bauer returns this fall with a new apparel line, The Heritage Collection. Last month, Golden Gate Capital rescued the bankrupted retailer for $286 million. The clothing collection features 22 styles for men, including hunting coats, rugged chaps, fly-fishing vests, moleskin field shirts and leather jackets. The line is available now at www.eddiebauer.com and will roll out later this month at select stores. <licensemag.com>


-Brazilian tanneries pleased with results of ACLE 2009 - The Brazilian Leather export program coordinated the CICB - Center for the Tanning Industry in Brazil, with support from the Brazilian Export Agency APEX-Brazil, reported on the All China Leather Exhibition (ACLE 2009) held in Shanghai, China, from 2 – 4 September. <fashionnetasia.com>


-Pakistan: Government provides new subsidies to garment companies - The Pakistan government has promised to offer PKR17 bn (US$205 m) as a 3% cash subsidy to exports of knitted or woven garments during fiscal year 2009-10 based on the net FOB value. An additional 1% subsidy will be given to those garment exporters who can increase their shipments by 15% compared with the previous year. The government says that the subsidy will be paid to provide drawback of local taxes and levies collected from garment manufacturing plants. <fashionnetasia.com>



RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): KR, AMZN


09/16/2009 02:12 PM


Re-shorting an over-owned name that got hammered yesterday for reporting terrible numbers. Levine remains bearish on Krogering. Shorting green. KM


09/16/2009 01:50 PM


Buy Amazon because the Bankers of America at Merrill like that this is an e-commerce "play" - you have to be kidding me. And Wall Street's crash isn't even 1yr old yet. Shorting high. KM



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 80.51%
  • SHORT SIGNALS 78.32%


MGM released an 8K stating that it may need to take an impairment charge on CityCenter. While that's no surprise, the comment that sales proceeds from the CityCenter residential segment may come in below cost is not good.



MGM released an 8K this morning, stating that it may need to take an impairment charge on CityCenter and its condo developments at CityCenter when it reports 3Q09 results.  Is anyone surprised that the PV of the cash flows won’t add up to north of $11BN?  What may be a surprise is that residential sales proceeds may fall below cost.


MGM made two comments regarding the value of CityCenter

1)      The value of the casino, hotels, and retail, will have to be written down since the present value of the cash flows will be lower than the net book value of the development – ok, this is really no surprise to anyone

2)      The eventual sale price of the residential piece of CityCenter will likely be below the construction cost plus marketing/selling cost, which sounds like they are going to have to lower prices even more than expected


Well, the good news is that MGM only owns 50% of CityCenter ….


“The Company expects to conduct an impairment analysis of its investment in CityCenter as of September 30, 2009. The Company believes it is reasonably likely that the outcome of this review may lead to a non-cash impairment charge but cannot reasonably estimate the amount or range of such impairment charge at this time. 


In addition, CityCenter has a significant amount of residential real estate currently under development. Its ability to close out its residential sales program will be based, in part, on future market conditions. As disclosed in the June 30 10-Q, CityCenter may incur a non-cash impairment charge if discounts to the prices of residential units prior to completion lead to a conclusion that the carrying value of the residential inventory is not recoverable based on management’s estimates of undiscounted cash flows. Once the residential inventory is complete, CityCenter will be required to measure such inventory at the lower of a) its carrying value, or b) fair value less cost to sell. It is reasonably likely that the fair value less cost to sell of the residential inventory at completion will be below the inventory’s carrying value, and that the joint venture will be required to record an impairment charge at that time — which may be in the fourth quarter of 2009 or the first quarter of 2010. The Company would record 50% of any such impairment, offset by certain basis differences, as a part of ‘Income from Unconsolidated Affiliates’ in its Consolidated Statements of Operations.”

Healthcare Swingers

“So was I once myself a swinger of birches; And so I dream of going back to be”
-Robert Frost “Swinger of Birches”

I am always surprised by how quickly time passes and how little I remember from even just a few weeks, let alone months ago.  Perhaps having a career that rewards me for only looking forward leaves no room to absorb the historical context of these passing moments.  Fortunately, Research Edge makes it our business to remember, to comb over the history books, to find the patterns hiding in the plain sight of the data. 

Senator Baucus announced his version of Health Reform yesterday, a major milestone in the healthcare debate, bringing to a close an adventure which began with his “Call to Action” a mere 10 months ago.  The United States had just elected the young and compelling Barack Obama to the Presidency a few days before and riding the wave of optimism in the face of the global financial crisis, the new President announced the ultimate in legislative challenges, Health Reform.  He then tapped the unlikely Baucus to spearhead drafting legislation that would fundamentally change Healthcare. 

My analytical life since has been tangled up in the world of politics and policy the last ten months,  learning as much about how the game is played as the policy details of the debate.  It is staggering and a little depressing to see how quickly hope and optimism can fade, how much effort could be wasted, and how little the system would ultimately be changed.

Adding 33M newly insured Americans, creating new tax codes, and wrenching fees from industry are significant changes, and if this legislation is signed into law, it will accelerate growth for a decelerating Healthcare industry.  It’s one of the reasons the Healthcare sector is one of Keith’s favorite sectors.  Ten months ago, any changes seemed improbable, but here they are…and as significant as they are, they leave untouched the problem of healthcare costs.  

Baucus’s plan holds firmly onto the same payment systems and the same incentives which has brought us this “healthcare crisis.”  Providers will still be paid on a per click basis, guiding their businesses (physicians included) to the highest value procedures. The government will continue to underpay for service, just more frequently with an expansion of Medicaid, forcing more providers to ferret out the lucrative procedures.  Industry will continue to set prices for advancements in care, both marginal and material. And private insurance and the private sector will continue to pick up the slack. The Baucus proposal is a story of incremental change and tells the Healthcare industry not to worry; we are leaving the details to be filled in later by Medicare and your normal channels of influence.  If history is any guide, leaving the details to Medicare leads to marginal changes at best.

Healthcare is no longer the defensive sector it once was.  Revenue growth is no longer reliable in good times and bad. The Aging Boomer is far less important than the Consumer Confidence index.  Healthcare continues to consume an ever increasing share of personal spending and the correlation between consumer spending and healthcare is at an all-time high.  
Meanwhile the correlation between the USD and equities remains as strong as ever, for now. Dollar down equals equities up. As the vote counting for the Baucus bill progresses, with all the drama of an uncertain outcome, our creditors will be voting as well.  Without payment reform, the Baucus proposal merely rearranges the deck chairs, taking fees from industry, writing new tax code, and injecting a revenue booster into the Healthcare Economy, but doing little to change the delivery of healthcare. Without Payment Reform, the well documented weights on the USD, budget deficits and national debt, may be heavier than ever.


In Frost’s world, he’d like merely to be young again and go for a ride on a birch tree.  The optimism 10 months ago is gone and the story of Health Reform debate may yet again be the old and wise looking back in nostalgia at a missed opportunity.


At least Frost swung from birches.

Thomas Tobin
Managing Director


CAF – Morgan Stanley China Fund A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the more volatile domestic equity market instead of the shares listed in Hong Kong. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth. Although this process will inevitably come at a steep cost, we still see this as the best catalyst for economic growth globally and are long going into the celebration of the 60th Anniversary of the People’s Republic.

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. We shorted EWU on 9/9.

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.



Seven people are dead and four are missing as typhoon Koppu hit south China.  More than 100,000 residents had to be evacuated as torrential rain caused mudslides in Guangdong province.  The typhoon has thus far resulted in an estimated economic loss of two billion yuan, according to the civil ministry.  Houses in parts of the province were destroyed and a cargo ship ran aground in Zhuhai city’s harbor near Macau, spilling 50 tons of fuel into the sea.




Due to the rising prices of shares in gambling companies in Hong Kong, Wynn Macau is considering increasing its IPO fundraising target by 30-40% to HK$7.8 billion, according to an unnamed source.

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