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$AMZN + USPS = Win, Win, Win

Takeaway: This news announcement is a win-win-win all around.

Editor's note: Hedgeye Retail Sector Head Brian McGough sees good news all around on news that the US Postal Service has entered a partnership with online retail giant Amazon to deliver its packages on Sundays for the first time.

 

$AMZN + USPS = Win, Win, Win - amabez

 

From the Wall Street Journal:

  • "Amazon.com Inc. will begin delivering packages on Sundays in the nation's two largest cities later this month with...the United States Postal Service."
  • "Amazon said Sunday delivery will begin on Nov. 17 in Los Angeles and New York and expand next year to Dallas, New Orleans, Houston and Phoenix, among others. Amazon will bring packages from its warehouses to Postal Service locations on Saturday evening or Sunday morning. The agency will then deliver them to doorsteps."
  • "Sunday delivery will be available for all Amazon customers in markets where the program is available at no additional cost. Customers won't specify Sunday delivery; eligible items will show up on Sunday if that is when they are ready."

Takeaway: This is a win, win, win. Consumers win, for obvious reasons. Amazon wins, as it can advertise Sunday delivery for the first time ever (and does so on the cheap by taking advantage of the USPS when it's on the ropes). Finally, the beleaguered Post Office wins. This partnership with Amazon is a cash flow stream -- albeit a minor one -- that helps prolong its inevitable demise.  

 


MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK

Takeaway: Both the US & EU banking systems are leading the charge higher as systemic risk measures remain in check, rates rise and the CRB falls.

Risk Monitor / Key Takeaways:

Friday was a watershed day as rates rose and Financials rallied aggressively, the best performing sector in the market. Not surprisingly, we saw a close resemblance between Friday's performance and the broader performance from early May to early September, i.e. the positively correlated, rate-sensitive Financials that led the charge from May to Sep were back in force on Friday. The Financials are now again bullish across all 3 durations in our quantitative model. We provide a brief summary below of some of the notable callouts across the various risk measures we track.

 

* 2-10 Spread – Last week the 2-10 spread widened to 230 bps, 6 bps wider than a week ago. 

 

* Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 56 basis points last week, ending the week at 3.73% versus last week’s print of 4.289%.

 

* CRB Commodity Price Index – The CRB index fell -2.0%, ending the week at 274 versus 280 the prior week. As compared with the prior month, commodity prices have decreased -4.5% 

 

* High Yield (YTM) Monitor – High Yield rates rose 8.2 bps last week, ending the week at 6.03% versus 5.95% the prior week.

 

* European Financial CDS - Swaps tightened broadly across European Financials last week. #EuroBulls remains alive and well in the banking sector..

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 6 of 13 improved / 2 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Positive / 8 of 13 improved / 1 out of 13 worsened / 4 of 13 unchanged

 • Long-term(WoW): Positive / 3 of 13 improved / 1 out of 13 worsened / 9 of 13 unchanged

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 15

 

1. U.S. Financial CDS -  Last week was largely uneventful for US banks and insurers as swaps were decidely mixed and little changed. Overall, swaps widened for 15 out of 27 domestic financial institutions, rising by a median 2 bps (though unch'd on an average basis). 

 

Tightened the most WoW: WFC, HIG, MBI

Widened the most WoW: CB, ALL, AXP

Tightened the most WoW: MTG, MS, AGO

Widened the most/ tightened the least MoM: GNW, GNW, TRV

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 1

 

2. European Financial CDS - Swaps tightened broadly across European Financials last week. #EuroBulls remains alive and well in the banking sector as the EU Financials posted a mean and median tightening of 5 and 14 bps, respectively. The biggest improvements came from Greece, Spain, Italy and Portugal. The only negative divergence was again Sberbank of Russia, where swaps widened 7 bps to 219 bps on further commodity deflation.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 2

 

3. Asian Financial CDS - Asia was again mixed last week, but generally worse. Indian banks saw swaps at 2 out of 3 rise materially. Japanese banks were generally higher with the exception of Daiwa where swaps tightened 3 bps. Chinese banks were also mixed with two tightening 5 bps and one widening 4 bps.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 17

 

4. Sovereign CDS – Sovereign swaps were tighter across the board except in the US, where swaps widened a modestt 1 bp to 31 bps. The biggest improvements came from Portgual (-31 bps) and Spain (-13 bps). 

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 18

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 3

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 8.2 bps last week, ending the week at 6.03% versus 5.95% the prior week.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 7.0 points last week, ending at 1828.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 6

 

7. TED Spread Monitor – The TED spread fell 1.4 basis points last week, ending the week at 18.6 bps this week versus last week’s print of 19.98 bps.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 7

 

8. CRB Commodity Price Index – The CRB index fell -2.0%, ending the week at 274 versus 280 the prior week. As compared with the prior month, commodity prices have decreased -4.5% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread was unchanged 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. 

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 56 basis points last week, ending the week at 3.73% versus last week’s print of 4.289%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 10

 

11. Markit MCDX Index Monitor – Last week spreads widened 2 bps, ending the week at 86 bps versus 84 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.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 11

 

12. Chinese Steel – Steel prices in China rose 1.4% last week, or 49 yuan/ton, to 3559 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 230 bps, 6 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 1.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: RISING RATES AND SHRINKING RISK - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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MACAU TRACKING TOWARD 20% +

Table revenues for the first 10 days of November were solid with average daily up 20%+ over the comparable period of last year.  We won’t put too much emphasis on 10 days of data other than to say that we feel comfortable with our full month GGR projection of 17-22% YoY growth.  November should mark a slowdown from the blockbuster October growth of 32% but we believe that is well-known.  Maybe less known is the tough December comparison, which could drive December growth down to the low to mid-teens.

 

Market shares mean little at this stage of the month but for what it’s worth MGM and MPEL are off to a good start while LVS, Galaxy, and SJM shares are all below recent trend.

 

MACAU TRACKING TOWARD 20% + - m2

 

MACAU TRACKING TOWARD 20% + - m3


G-N-A-R-L-Y

Client Talking Points

US DOLLAR

The new public enemy #1 to the purchasing power of Americans (Janet Yellen) will be front and center in Washington this Thursday. Will she eliminate economic gravity expectations for the U.S. to ever taper? Ever? Will the foreign exchange market reverse all of last week’s US Dollar's gains? @Hedgeye TREND resistance for US Dollar Index is $81.29

EMERGING MARKETS

We brought back the pre-no-taper-decision band last week (Up Dollar + #RatesRising). Emerging Markets didn’t like that anymore than Gold did. The MSCI Emerging Markets down -1.7% and MSCI Latin America down -2.8% on the week with the Dow hitting another all-time high. This is getting gnarly again. Incidentally, the SPX risk range is 1748-1778 now.

GOLD

Gold was down -1.9% last week and down another -0.5% this morning. For almost a year now, my mean reversion target level for Gold has been $1271. So, I’m interested in buying back closer to that price with Janet Yellen being my catalyst on Thursday. The net long position (futures/options) in Gold dropped -13% last week. More to be revealed here.

Asset Allocation

CASH 62% US EQUITIES 6%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
DAX

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

What is the enemy of Gold? #StrongDollar + #RatesRising @KeithMcCullough

QUOTE OF THE DAY

The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults. -Alexis de Tocqueville 

STAT OF THE DAY

In the year 2000, there were only 17 million Americans on food stamps.  Today, there are more than 47 million Americans on food stamps.


What's New Today in Retail (11/11)

Takeaway: AMZN goes Postal. But it’ll never catch Alibaba. RH launches Contemporary Art. Gucci and GES drop the gloves. PVH SCC LVMH UA

COMPANY NEWS

 

AMZN - Amazon to Begin Sunday Deliveries, With Post Office's Help

(http://online.wsj.com/news/articles/SB10001424052702304868404579190091121691258)

 

  • "Amazon.com Inc. will begin delivering packages on Sundays in the nation's two largest cities later this month with...the United States Postal Service."
  • "Amazon said Sunday delivery will begin on Nov. 17 in Los Angeles and New York and expand next year to Dallas, New Orleans, Houston and Phoenix, among others. Amazon will bring packages from its warehouses to Postal Service locations on Saturday evening or Sunday morning. The agency will then deliver them to doorsteps."
  • "Sunday delivery will be available for all Amazon customers in markets where the program is available at no additional cost. Customers won't specify Sunday delivery; eligible items will show up on Sunday if that is when they are ready."

 

Takeaway: This is a win, win, win. Consumers win, for obvious reasons. Amazon wins, as it can advertise Sunday delivery for the first time ever, and does so on the cheap by taking advantage of the USPS when it's on the ropes. And the Post Office wins, because this is a cash flow stream -- albeit a minor one -- that helps prolong its inevitable demise. 

 

Alibaba - Alibaba Breaks Sales Record on China Singles Day Amid Discounts

(http://www.bloomberg.com/news/2013-11-11/alibaba-breaks-sales-record-on-china-singles-day-amid-discounts.html)

 

  • "Alibaba Group Holding Ltd. said transactions on its websites today surpassed last year’s single-day sales of 19.1 billion yuan ($3.1 billion) as discounts fueled demand on China’s biggest online shopping day."
  • "Taobao and Tmall, Alibaba’s two main platforms, broke last year’s sales in the first 13 hours of the 24-hour period…"
  • "Tmall’s vendors, starting midnight, began cutting prices by 50 percent or more on selected products from 20,000 Chinese and international merchants, including GAP Inc. and Steven Madden Ltd…"

 

Takeaway: Alibaba is like Amazon on steroids. Not only is it bigger and more profitable, but it also does a much better job of branding high-end product. Even brands like Ralph Lauren are considering going with Alibaba in China instead of opening up their own site.

 

RH - RH (Restoration Hardware) Announces the Launch of RH Contemporary Art

(http://online.wsj.com/article/PR-CO-20131108-908720.html?mod=WSJ_qtpressrel_pressrel)

 

  • "RH Contemporary Art...announces the opening of its first art gallery, located within a six-floor, 28,000-square-foot building at 437 West 16th Street in New York City's Chelsea art district. The gallery encompasses recently renovated spaces devoted to exhibitions and programming."
  • "Along with the premiere gallery space opening in Chelsea, RH Contemporary Art will include an online gallery featuring original content and a series of artist documentaries produced by RH Contemporary Art, as well as an art journal, which will be written by a roster of acclaimed curators, critics and artists. RH Contemporary Art plans to open a second RH Contemporary Art gallery space in Los Angeles in 2014."

 

Takeaway: Not a revenue event for RH, but more of a brand builder. The company is channeling the $35mm that they are saving (had been wasting) from the Fall sourcebook into things like Art and Music -- things that they are getting flack about from investors. But in the end, we estimate that they're only spending in the neighborhood of $10mm on these initiatives.

 

UA - Threat to Under Armour Headquarters Called Hoax

(http://online.wsj.com/news/articles/SB10001424052702304644104579190503763812172)

 

  • "Baltimore police gave the all-clear at Under Armour Inc.'s headquarters late Sunday after an apparent hoax led to a lockdown for several hours."
  • "Police SWAT teams spent more than four hours combing Under Armour's 530,000-square-foot headquarters in the Locust Point section of Baltimore after receiving a phone call Sunday afternoon with an unspecified threat to the building."
  • "News reports speculated earlier Sunday that there might be an armed gunman at the headquarters. Lt. Kowalczyk said that was never the case."
  • "Under Armour spokeswoman Diane Pelkey said in an email that the company has received clearance to re-enter its premises."

 

KER, GES - Guccio Gucci SpA Wins Trademark Case in China

(http://www.wwd.com/fashion-news/fashion-scoops/china-win-7271186?module=hp-topstories)

 

  • "The Nanjing Intermediate People’s Court of China sided with ...Gucci SpA...Wednesday in a dispute with Guess over trademark infringement and unfair competition activities in China. Gucci claimed that Guess and affiliates were imitating its collections and image, to the detriment of the Italian luxury brand."
  • "This is the second international jurisdiction in which Gucci has won a lawsuit against Guess, following the June 2012 ruling of a U.S. court that awarded Gucci $4.7 million in damages. Other verdicts are pending in Italy and France; in June, Gucci appealed a Milan ruling that Guess’s Quattro G-diamond pattern was unrelated to Gucci’s interlocking double-G pattern."

 

Takeaway: In the world of copyright infringement, it's so rare for two major brands to go head to head (actually, Nike and Adidas do it all the time -- but aside from them, it's rare).

 

PVH - PVH Licenses IZOD and Van Heusen Brands to BH in the Philippines

(http://apparel.edgl.com/news/PVH-Licenses-IZOD-and-Van-Heusen-Brands-to-BH-in-the-Philippines89338)

 

  • "PVH Corp. and BH Fashion Retailers Inc. have entered into license agreements under which BH Fashion Retailers will market and distribute certain apparel and accessories for the IZOD and Van Heusen brands in the Philippines. The initial term of the license agreement runs through December 2018."
  • "Under the license agreement for PVH’s IZOD brand, BH Fashion Retailers will market and distribute sportswear, golfwear, dress shirts, neckwear, outerwear, swimwear and certain accessories. Under the license agreement for Van Heusen, BH Fashion Retailers will market and distribute sportswear, outerwear, dress furnishings and accessories. BH Fashion Retailers is planning to open free standing IZOD and Van Heusen stores, as well as developing shop-in-shops at better department stores throughout the Philippines."

 

SCC - Sears Canada Announces Sale of Certain Joint Ventures

(http://phx.corporate-ir.net/phoenix.zhtml?c=117881&p=irol-newsArticle&ID=1874638&highlight=)

 

  • "Sears Canada Inc. announced that it has reached a definitive agreement with Montez Income Properties Corporation to sell its 50% joint venture interest in eight properties it owns with The Westcliff Group of Companies for approximately $315 million."
  • "The transaction is scheduled to close on January 8, 2014. The properties involved are comprised of four regional shopping centres, two strip centres and two open-format retail centres. Westcliff will continue as 50% owner and exclusive manager of the properties."
  • "Sears stores that are currently situated on these properties will remain in operation; there will be no impact on customers or associates in these stores as a result of this transaction."

 

Takeaway: Anything Sears-related continues to be front and center for monetization.

 

LVMH - Louis Vuitton Opens a 'Townhouse' at Selfridges

(http://www.wwd.com/retail-news/department-stores/vuitton-opens-a-townhouse-at-selfridges-7270684?module=hp-topstories)

 

  • Louis Vuitton has opened a new store in London, the "10,000-square-foot, three-story shop-in-shop known as the Townhouse that features a revolving glass elevator inside a double helix, and an interactive 'digital atelier' — has opened at Selfridges."
  • "For the first time at Selfridges, Louis Vuitton has united all of its collections under one roof, including the collections by men’s style director Kim Jones, which had not been carried at the London department store until now. The new Vuitton store has its own entrance, next door to the main Selfridges one on Oxford Street."

 

What's New Today in Retail (11/11) - chart1 11 11

 

INDUSTRY NEWS

 

Q3 E-comm Sales Up 13 Percent YoY

(http://apparel.edgl.com/news/Q3-E-comm-Sales-Up-13-Percent-YoY89339)

 

  • "comScore, Inc. released its estimates of Q3 2013 U.S. desktop-based retail e-commerce sales. Q3 2013 sales grew 13 percent year-over-year to $47.5 billion…"
  • "M-commerce spending on smartphones and tablets added $5.8 billion for the quarter, up 26 percent vs. year ago, for a total digital commerce spending total of $53.2 billion in the third quarter."
  • "The top-performing online product categories were: Digital Content & Subscriptions, Apparel & Accessories, Consumer Packaged Goods, Consumer Electronics and Jewelry & Watches. Each category grew at least 14 percent vs. year ago."
  • "E-commerce accounted for 9.4 percent of consumers' discretionary spending, the highest third quarter share on record."
  • "Of the additional $5.8 billion in mobile commerce (m-commerce), purchasing using smartphones accounted for 62 percent vs. 38 percent from tablets."

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