Takeaway: Shame on Bernanke.
I bought Gold for the first time in a year on Friday.
The immediate-term TRADE correlation between the US Dollar and Gold is -0.78, so I shorted the Dollar for the first time in over a year too.
Shame on Ben Bernanke. Shame on the Fed's no tapering policy. It should slow growth back to 2% from 2.5% first, then we can decide what happens from there (on the margin that matters).
Click to enlarge.
Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor". If you'd like to receive the work of the Financials team or request a trial please email .
European Financial CDS - Europe resumes its winning ways. We are seeing broad-based improvement across Spanish, Italian, French and even Greek banks. The only notable widening came from Sberbank of Russia, where swaps widened by 19 bps to 212 bps.
Sovereign CDS – Sovereign swaps had a good week last week. The US posted a sharp improvement of 7 bps, falling to 30 bps. France and most of the rest of the Europe also moved lower. The only negative movers were Japan (+2 bps) and Germany (+1 bp).
Euribor-OIS Spread – The Euribor-OIS spread was unchanged last week at 11 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.
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.
Takeaway: Europe and its banks improved again (even in Greece). Spreads widened modestly and commodity prices fell further.
Risk Monitor / Key Takeaways:
Things appear to be going the right way again, on the margin. Yield spreads widened modestly for the first time in some time (+3 bps W/W). Commodity prices continued to fall, dropping another 2.4% last week. Sovereign credit default swaps dropped notably with the US leading the charge and Europe close behind. Europe's banks also looked quite good, again. The only notable area to watch remains the Chinese interbank rate which climbed again last week, tacking on another 22 bps.
* 2-10 Spread – Last week the 2-10 spread widened 3 bps to 224 bps.
* CRB Commodity Price Index – The CRB index fell -2.4%, ending the week at 275 versus 282 the prior week. As compared with the prior month, commodity prices are down -3.7% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.
* Sovereign CDS – Sovereign swaps had a good week last week. The US posted a sharp improvement of 7 bps, falling to 30 bps. France and most of the rest of the Europe also moved lower. The only negative movers were Japan (+2 bps) and Germany (+1 bp).
* European Financial CDS - Europe resumes its winning ways. We are seeing broad-based improvement across Spanish, Italian, French and even Greek banks. The only notable widening came from Sberbank of Russia, where swaps widened by 19 bps to 212 bps.
* Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 22 basis points last week, ending the week at 4.59% versus last week’s print of 4.37%.
Financial Risk Monitor Summary
• Short-term(WoW): Positive / 5 of 13 improved / 1 out of 13 worsened / 7 of 13 unchanged
• Intermediate-term(WoW): Positive / 10 of 13 improved / 1 out of 13 worsened / 2 of 13 unchanged
• Long-term(WoW): Positive / 2 of 13 improved / 1 out of 13 worsened / 10 of 13 unchanged
1. U.S. Financial CDS - US Financials were mixed with large cap banks predominantly wider, though only by 1-2 bps, on average. US mortgage insurers, MTG & RDN were tighter, improving by 20 and 15 bps, respectively. US Insurers were broadly tighter last week.
Tightened the most WoW: ALL, MBI, AGO
Widened the most WoW: COF, AXP, C
Tightened the most WoW: MS, CB, AIG
Widened the most/ tightened the least MoM: TRV, GNW, GNW
2. European Financial CDS - Europe resumes its winning ways. We are seeing broad-based improvement across Spanish, Italian, French and even Greek banks. The only notable widening came from Sberbank of Russia, where swaps widened by 19 bps to 212 bps.
3. Asian Financial CDS - Asia was mixed last week, but on balance tighter. The largest movers were Japan's Nomura and Matsui Securities, tightening by 11 and 14 bps, respectively. On the month, the largest movers remain India's banks, tighter by an average 32 bps.
4. Sovereign CDS – Sovereign swaps had a good week last week. The US posted a sharp improvement of 7 bps, falling to 30 bps. France and most of the rest of the Europe also moved lower. The only negative movers were Japan (+2 bps) and Germany (+1 bp).
5. High Yield (YTM) Monitor – High Yield rates rose 3.3 bps last week, ending the week at 5.95% versus 5.92% the prior week.
6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3.0 points last week, ending at 1821.
7. TED Spread Monitor – The TED spread fell 0.4 basis points last week, ending the week at 20 bps this week versus last week’s print of 20.4 bps.
8. CRB Commodity Price Index – The CRB index fell -2.4%, ending the week at 275 versus 282 the prior week. As compared with the prior month, commodity prices have decreased -3.7% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.
9. Euribor-OIS Spread – The Euribor-OIS spread was unchanged last week at 11 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.
10. Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 22 basis points last week, ending the week at 4.59% versus last week’s print of 4.367%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.
11. Markit MCDX Index Monitor – Last week spreads tightened by 1 bp, ending the week at 84 bps versus 85 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.
12. Chinese Steel – Steel prices in China rose 0.9% last week, or 30 yuan/ton, to 3510 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.
13. 2-10 Spread – Last week the 2-10 spread widened to 224 bps, 3 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.
14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.7% upside to TRADE resistance and 0.6% downside to TRADE support.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
In preparation for MPEL's F3Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.
CITY OF DREAMS PREMIUM MASS/NON-GAMING
- We're very much focused on one segment, the premium mass, whereby most of our competitors they have (been focusing) between portfolios (of segments)...Non-gaming improvement, really, really help us to improve our length of stay for those customers.
- Studio City, our unique cinematically themed integrated resort remains on budget and on track to open in mid-2015.
CITY OF DREAMS MANILA
- The development of our Philippines project is also moving forward as anticipated with the opening date remaining unchanged at around the middle of 2014.
CITY OF DREAMS 5TH TOWER
- We anticipate starting construction on a fifth tower at City of Dreams before the end of 2013. This iconic development will provide another powerful lever to drive our premium mass business and expand our high-end patronage at City of Dreams, in turn enhancing property-wide return on invested capital.
- Total depreciation and amortization expense is expected to be approximately $95MM to $100MM. Corporate expense is expected to come in at $20MM to $22MM, and consolidated net interest expense is expected to be approximately $38MM to $40MM, which includes finance lease interest of $11MM relating to the Philippines development and approximately $10MM of interest expense associated with Studio City. This takes into account approximately $8MM of capitalized interest related primarily to Studio City.
- I think the board is committed to look at a regular dividend policy because unlike some of our competitors, I think our board and the management team would prefer if we had stuck to one dividend policy. So we don't want to kind of make the decision like hastily. So anyways, it's going to be some time at the end of this year, early next year that we're going to sit down to discuss.
Takeaway: WMT kicks off the holiday price wars, BBY conquesrs showrooming?, new leadership at Sebago & Stride Rite, TCS doubles, DLTR files IPO
EVENTS TO WATCH OVER THE NEXT 24 HOURS
KORS - Earnings Call: Tuesday 11/5 8:00 am
CVS - Earnings Call: Tuesday 11/5 8:30 am
WMT - Walmart kicks off online holiday deals early
- "Walmart on Friday kicked off its online holiday deals, a month earlier than usual, and announced that it is offering free shipping on about 99% of its online items this year for orders over $50. (Last year, only about 15% of its assortment qualified for free shipping)."
- "The chain’s online sales event on November 1 features some 300 early-bird specials and includes items from JVC 42-inch LED televisions for $299 to Xelio 10.1-inch tablets for $49. According to the retailer, those are Walmart.com's lowest prices in those categories."
Takeaway: WMT and JCP are going to emerge as the two most heavily promotional retailers this holiday. The difference with JCP is that it can discount product heavily and still print a big margin improvement versus a disastrous 2012.
M - The World of Oscar de la Renta Comes to Bloomingdale's
- "The 'world of Oscar de la Renta' is located at 772 Madison Avenue, the designer’s flagship. Now a version of the breadth of offerings can be found in a new leased department at Bloomingdale’s 59th Street flagship."
- "The 1,000-square-foot space, which bowed Friday, is de la Renta’s first leased department in the U.S. and marks the first time in more than 20 years that the designer’s ready-to-wear is available at Bloomingdale’s."
Takeaway: The fact that de la Renta is moving into Bloomie's is hardly notable, but the fact that it is a leased space definitely is. We're a fan of this model for M (which it does to a large extent in Bloomingdale's). It leaves upside on the table, but it guarantees no downside. And let's face it, there's rarely much upside anyway.
WWW - Wolverine Appoints New VP and General Manager of Sebago
- "Wolverine Worldwide announced the appointment of Frank Annunziata to the position of vice president and General Manager of Sebago with responsibility for the further development of the brand's global growth platform of footwear, apparel and accessories. Annunziata most recently served as senior vice president – sales for the Clarks Footwear Company."
Takeaway: Sebago is a brand we almost never hear about, but it has a strong competitive positioning in its category. And with the addition of Sperry to the portfolio, it allows the WWW sales force and distribution network to sell complimentary brands into each other's customer base.
WWW - Wolverine Worldwide Names Ira P. Hernowitz President Of Stride Rite Children's Group
- "Wolverine Worldwide today announced the appointment of Ira P. Hernowitz as President of the Stride Rite Children's Group."
- "He most recently served as Executive Vice President of "R" Us Brands for Toys R Us, Inc."
Takeaway: This is the second executive appointment in two days for WWW’s brands – that’s not unusual. But what is unusual is that both executives are external hires. While the talent pool is certainly greater outside of WWW’s walls, we’re not crazy about what this tells the broader employee base about where it is looking to source its talent.
BBY - Fear of 'Showrooming' Fades
- "'A year ago, people said that showrooming would kill Best Buy,' Mr. Joly said in an interview. 'I think that Best Buy has killed showrooming.'"
- "Best Buy last year estimated that one in five of the nearly 600 million people who visited its stores did so with the intention of making the purchase online, though a spokesman for the company said its price-matching pledge has likely changed that math since then."
- "Promoting Best Buy as a showroom comes after the chain put in place a permanent price-matching plan to prevent online rivals from undercutting its prices. Analysts estimate that less than 10% of shoppers take advantage of Best Buy's price-match offer, but executives have said the pledge is enough to keep the company from losing customers to sticker shock."
Takeaway: Sounds like BBY is declaring victory before the battle has even begun. Perhaps what they're saying is that they overestimated the showrooming threat initially. But make no mistake, this is a huge problem that they'll have to face for a long time.
TCS - Container Store Cleans Up After IPO Party
- "In the company’s first day trading on public markets this morning, its share price has already doubled. Container Store packaged its IPO late yesterday, selling 12.5 million shares for $18 each, the high-end of its expected range. The deal valued the retailer at $828 million, slightly more than its $707 million in sales last year."
Takeaway: While banker's always want strong demand for an IPO, this one is just embarrassing. We'd love to have heard how they explained to the company that its underestimation of interest by investors cost them 100%. In the meantime, investors were the big winners -- at least those who managed to get some stock.
BBG - Billabong Sells West 49 Chain to YM
- "...Australian surfwear manufacturer Billabong International Ltd said Monday that it has sold its Canadian retail chain West 49 to Toronto-based YM Inc for approximately 9 to 11 million Canadian dollars, or $8.63 to 11 million at current exchange."
- "Billabong said it has also signed an approximately 34 million Canadian dollar ($33 million) non-exclusive wholesale supply agreement with YM for the next two years. Billabong will retain six Billabong stores and two Element stores in Canada."
- "Billabong also said that it has already received $300 million of the $360 million loan Centerbridge Partners and Oaktree Capital Management are giving the Australian company. Billabong said it used the funds to repay the $294 million bridge loan it owes the Altamont Consortium."
Takeaway: Good strategy to buy an asset from a company whose equity has been cut by 99% over two years.
KORS - Michael Kors' Huge 'Likes' Tally Provides Flipside to Rocky Instagram Ads Debut
- "With Michael Kors taking the front-line lead as the first paid advertiser ever on the social-photos platform, Adweek earlier reported that the shrapnel was considerable as Instagram users were firing nasty complaints at the brand."
- "That still appears to be the case, although it's probably slowed down as people around the nation begin to attend to their weekend plans. Still, over the last few hours, conversely, Michael Kors' "likes" for the ad have exploded, exceeding 150,000 at press time."
- "Based on our editorial team's research, the retailer's "likes" high in recent weeks on the platform was 85,000, while averaging about 50,000 per post. So while whatever Michael Kors is paying the Facebook-owned app for the engagement, the fashion marketer looks to be getting all kinds of bang for its buck."
- "...coming soon are promos from adidas, Ben & Jerry's, Burberry, General Electric, Levi's, Lexus, Macy's, PayPal and Starwood."
VERSACE - Versace family stake goes to beauty parade
- "The Versace family has…[invited] private equity investors to make a second round of competitive bids at the end of this month."
- "The bidders for 20 to 30 per cent of Versace include former Gucci owner Investcorp, the Bahrain-based investment firm, as well as fund manager Blackstone and London-based Permira, the private equity group that owns Hugo Boss and sold Valentino last year, people with knowledge of the talks said. They also include the Italian strategic fund FSI and Paris-based group Ardian."
- "Offers for what is one of the last independent Italian luxury brands were expected to exceed €850m, or more than 12 times the level of earnings before interest, tax, depreciation and amortization."
Takeaway: 12x EBITDA actually isn't that big of a multiple for a brand with the allure of Versace.
DTLR - Retailer DTLR Holding (DTLR) Files for $75M IPO
- "DTLR Holding, Inc. filed a registration with the U.S. Securities and Exchange commission for an Initial Public Offering of its Common Stock. The proposed maximum offering price is $75 million. The company plans to list on the Nasdaq Global Market under the ticker, DTLR."
- "Brief financial summary from the company: We have grown our store base from 68 at the end of fiscal 2009 to 95 stores currently. Our comparable store sales increased 4.3%, 7.3%, and 3.9% in fiscal 2010, fiscal 2011 and fiscal 2012, respectively. Our net sales increased from $135.0 million in fiscal 2009 to $181.5 million in fiscal 2012, representing a compound annual growth rate of 10.4%. Over the same period, our operating income increased from $7.5 million to $13.4 million, representing a compound annual growth rate of 21.4%."
- "DTLR Holding is a...lifestyle retailer of street-inspired footwear, apparel and accessories."
Takeaway: One of the smaller IPOs in recent memory. Primary concept is Down Town Locker Room (www.dtlr.com), which sells to urban youth. Products include Timberland, Reebok and Nike (in that order). For an urban retailer, there's a surprising lack of Air Force 1s and Jordan's.
ODP, OMX - Office Depot Merger With OfficeMax Wins U.S. Approval
- "Office Depot Inc.’s purchase of OfficeMax Inc. won approval from U.S. antitrust regulators, clearing the way for the office-supply companies to create a single retailer to compete with Staples Inc."
- "The U.S. Federal Trade Commission voted to close its seven-month investigation into the merger, saying online retailing ensured competition in the retail market for office supplies, according to a statement today."
Takeaway: Perhaps with the exception of SHLD/KMRT, this might go down as the most defensive merger in retail history (we'd probably throw FD/May in there as well).
Global Retail Trends Show China Leading the Charge in Online, Mobile Shopping
- "Shoppers across the globe are increasingly comfortable purchasing through multiple channels, ranging from in-store to online or through a mobile device. IBM's annual survey of 26,000 consumers from 14 countries shows that shoppers in developing economies are beginning to favor the convenience and personalization provided by online and mobile shopping sites."
- "Chinese consumers, in particular, are showing a much higher inclination to shop online than their global counterparts. According to the survey, 31 percent of shoppers in China said that they made their last purchase online, compared to 14 percent worldwide."
Best of Kids': Holiday Hit List
- "As part of Footwear News’ comprehensive look at the children’s market, retailers across the country shared their predictions for the items that will fly off the shelves this holiday season, from party shoes to must-have gifts."
SPRONG CHILDREN'S SHOES, Atlanta
- Florsheim Kennett oxford
- Primigi Ginni ballet flat
- Hunter rainboots
LAURIE'S SHOES, St. Louis
- Naturino chukka boot
- Nina Kids Patches boot
- Toms crib shoes
HAWLEY LANE, Shelton, Conn.
- Merrell Jungle Moc
- Sam Edelman Fiona ballet flat
- Stride Rite Disney shoes
LITTLE FEET, Denver
- Kenneth Cole Reaction Driving Dime loafer
- Geox Piuma Ballerina
- Minnetonka moc slippers
U.S., EU Trade Talks Said 'Back on Track'
- "U.S.Trade Representative Michael Froman said Friday the transatlantic trade talks between the U.S. and European Union are “back on track” after the U.S. government shutdown stalled the negotiations and a widening imbroglio over reported U.S. spying on European political leaders raised questions about the deal’s prospects."
Dress Import Units Up, Dollars Down So Far This Year
- "After increasing 7% in 2012, total U.S. dress imports have declined by 1.9% so far in 2013."
- "Import data from the Office of Textiles and Apparel, or OTEXA, show that in the first eight months of 2013, imports of dresses dropped 1.9%, to a total value of $3.3 billion. Total units rose .6% to 455 million, causing the average cost per unit to drop 2.5% to $7.33."
- "China is by far the largest sources of U.S. dress imports, with over half the total dollar volume. So far this year, however, China has lost share of the dress market, primarily to Vietnam. Other rapidly growing trading partners in dresses are Cambodia, whose dresses are also the cheapest, and Italy, the most expensive. Dress imports from India have fallen by almost 14% so far this year."
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