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WHAT BEIJING GIVETH… destination-macau.com


The Macao Daily broke the news on Wednesday that visa restrictions have been tightened once again by the authorities in Guangdong.  Shares in Macau casino companies fell yesterday as the news broke.  The frequency with which visitors can apply for visas to travel to Macau has gone from once every three months, to once per month, to the current limit of once every two months.  The reasoning behind this fluctuation is unclear and has caused some confusion. 


DM believes that analysts have paid too much attention to the Individual Visit Scheme, both in boom and gloom days, stating that “there has been only two months out of the past 18 when mainland arrivals really plunged, and that was around this time last year, when both IVS arrivals and tour group arrivals fell sharply”.  The recent boom, according to the author, is more influenced by the financial well-being of Macau’s VIP customers than the IVS scheme.




TABLE FOR SIX? destination-macau.com

The recent discussions led by Macau’s government regarding limits on table capacity expansion and raising the minimum age of casino visitors to 21.  DM sees this as positive news for the Big Six.  There is ample supply in the market; The Venetian had more than enough space no its floor during Golden Week. Considering that Lots 5&6 will be started as soon as possible, Galaxy is getting its Cotai resort going again, the government is clearly looking to calm the pace of expansion. If anything, DM believes investors should be concerned with diminishing industry ROI numbers as more projects are brought to completion.  There are many questions that remain to be answered, for instance, if there are unilateral caps or quotas imposed, how will the government decide who gets what?





MGM Mirage and Macau partner Pansy Ho plan on expanding their casino and exploring sites for potential resorts as they consider an initial public offering, according to a report on Bloomberg.com today.  Jim Murren, MGM CEO and Chairman, is quoted saying that MGM is “working on plans” to finish the 70,000 square feet of its casino’s second floor.  As for a possible IPO, Murren says that no decision has been taken but that “both partners have discussed it, and we believe it’s a very viable and attractive option… there’s been a very positive disposition towards it from both partners.”


Some commentators believe the indications from MGM that an IPO could be on the cards should be viewed cautiously given the “unclear picture” in light of the recent travel restrictions and the possible implementation of new laws concerning slot machines being banned from residential areas and raising the age for customers and staff at casinos to 21 from18 .


The visa situation is the first negative catalyst to emerge in Macau and the stocks are sliding. The remaining near-term (positive) catalysts could spark a rebound but investors shouldn’t lose sight of some 2010 warning signs.


The implementation of a new visa scheme was confirmed by the South China Morning Post today with the public security office in Guangdong.  It’s actually not a new scheme since they are reverting to the once every two month visit restriction in place pre-August.  We shouldn’t be surprised.  Beijing wants growth, but controlled growth - we think in the 5-10% range in terms of Mass revenues.  The restrictions shouldn’t be seen as a big negative since it’s indicative of excess demand – the only gaming market with excess demand – and will result in long-term predictable and strong Mass visitation.  Get used to it.


To us, the new restrictions are not all that important fundamentally but could continue to pressure the Macau stocks over the near term.  But we definitely care as more attractive buying opportunities may emerge.  Why aren’t we concerned about the reinstated restrictions?

  1. Solid, predictable growth generates very valuable cash flow streams as discussed above
  2. We’ve shown that there is little correlation between Mass visitation and gaming revenues, unlike every other market.  Macau follows a 90%+/10%- rule where less than 10% of the customers generate over 90% of the business.  This is clearly evident by the VIP contribution but also on the Mass side where the big hitters generate a huge amount of the Mass revenues.
  3. While Mass growth has been solid, VIP growth outstripped Mass in September and should continue to do so over the near term.  See the table below.  Other than the typical post holiday slowdown, the outlook for VIP growth looks terrific over the next few months owing to easy compares, excess liquidity, and Chinese stimulus.  VIP is unlikely to be affected by the visa restrictions.




Rather than focus on the visa restrictions, the Macau bears should focus their attention on two bigger issues facing Macau:

  1. Mass table game supply – 25% growth in YoY Mass table supply over the first half of 2010.  Beijing may be targeting 5-10% Mass growth but they are probably not targeting 5-10% Mass same store growth.
  2. VIP bubble? As shown in the chart, VIP is on a tear.  This business is a roller coaster recently fueled by Chinese stimulus and free flowing credit from the junkets.  We fear that we are in a bubble similar to 1H 2008 that will eventually pop, probably in 2010.

LVS looks to be most at risk from the new visa restrictions since they generate more of their business from Mass and are the slot revenue leaders.  It is also interesting to contemplate whether the restrictions were a big “Screw You” to Sheldon since visas were relaxed ahead of Wynn’s IPO but strengthened ahead of the LVS’ IPO.  LVS is also most susceptible to the Mass supply growth next year, particularly Oceanus which will be conveniently situated between Sands Macao and the Macau Ferry Terminal.  Longer-term, Mass is where you want to be so LVS is well positioned.  MPEL and WYNN seem better situated over the next few months, however, given their reliance on VIP and could experience a sharp rebound off the upcoming visa related lows.



 October 16, 2009





Retail sales numbers are trending better, as is the ICSC Weekly retail sales number, and both SportscanINFO and NPD apparel numbers. Then why are NPD footwear trends looking lousy? This is puzzling – especially given the incremental strength we’ve seen in the family footwear channel as well as with retailers like DSW.


We weight these factors by mix of business for the major footwear/apparel retailers to ‘lead indicate’ comps – which has proven to be directionally accurate. As one might expect, recent trends bode better for those with greater apparel exposure – such as Dick’s, Sports Authority, and Hibbett. Foot Locker and Finish Line, on the other hand, are not quite as safe given overwhelming dependence on footwear.  Inventory levels in that channels are vitally important t o track right now, and that’s now on our front burner.  










Some Notable Call Outs


  • While the grocery “bulls” await inflation, SWY painted a slightly different picture in the near-term. Early 4Q trends include a slight improvement in dairy deflation offset by an unexpected pick up in the meat category. Produce is showing some signs that deflation is easing as well. Management also described the “core” or dry grocery categories as being neither inflationary or deflationary. With all the uncertainty surrounding deflation/inflation, SWY elected not to provide sales guidance for the remainder of the year.


  • In an effort to compete with local businesses, Amazon launched same-day delivery in seven major cities. It’s hard to believe the good old days of Urban Fetch, Webvan, and Kozmo. The company will utilize pre-existing shipping facilities located near urban centers to fulfill orders that will then be delivered by a third party. The service is being offered at premium pricing, $6 for Prime members and $15 for regular customers. Depending on the size of the order, it might make sense to stick with your local bricks and mortar.


  • For those interested in history, and in particular the history of the garment industry in the U.S, HBO is premiering a documentary on the subject this Monday night. As someone whose family is involved in the rag trade, I’ll for sure be tuning in to Schmatta: Rags to Riches to Rags. It’s hard to believe that in the mid-60’s, 95% of American clothing was made in the U.S. Today it is less than 5%.





-Amazon launches same-day delivery in seven cities - In what some analysts see as an attempt to compete head on with bricks-and-mortar retailers, Amazon.com Inc. today announced a new shipping option that offers same-day delivery on items ranging from gourmet foods to electronics to hardware in seven major cities. The service is now available in New York, Philadelphia, Seattle, Boston, Washington, DC, Baltimore and Las Vegas, and Amazon plans to extend it to Chicago, Indianapolis and Phoenix in the coming months. Consumers enrolled in Amazon Prime, Amazon’s shipping membership program, pay $5.99 for same day delivery. For other customers, shipping rates vary by product and range in price from $14.49 to $18.99. In the same announcement, Amazon also said it will expand its Saturday Delivery options to allow items ordered before the cut-off time on Thursday using two-day shipping to be delivered on Saturday instead of Monday. <internetretailer.com>


-Carrefour to Pull Out of Russia - Carrefour, the world’s second-largest retailer behind Wal-Mart Stores Inc., reported a third consecutive drop in quarterly sales and said it’s pulling out of the Russian market after less than a year. In the third quarter to Sept. 30, sales declined 2.9 percent to 24 billion euros, or $34.32 billion at average exchange rates for the period, as a strong business in Latin America helped offset difficult markets in Western Europe. The company also revealed plans to sell its operations in Russia, where it has opened two hypermarkets in Moscow and Krasnodar since 2008, citing a lack of growth prospects and acquisition targets in that market. Recent press reports also had speculated the company was facing pressures from its largest investor, Blue Capital Group, to pull out of China and Brazil, but these were denied by Carrefour last week. <wwd.com>


-Wal-Mart Launches New Women`s Plus-Size Clothing Collection; Aids Disaster Relief in India - JMS Just My Size launched a new clothing collection at a fashion show in New York today and announced an agreement that makes JMS the dedicated plus-size apparel brand at Wal-mart. JMS will have a dramatically expanded presence in more than 3,500 Wal-mart stores across the U.S. focusing on trend-right styles at a value, with all items priced below $22. Instead of just a few key pieces, plus-size shoppers will consistently be able to find a full collection of clothing in sizes 16-28. New collections will arrive every month. In other news, The Wal-Mart Foundation announced today a donation of $125,000 in disaster relief for people impacted by recent flooding in southern India. This donation to CARE will assist in implementing immediate relief activities for approximately 25,000 flood survivors in the areas of Karnataka and Andhra Pradesh. <reuters.com> , <indiaretailing.com>


-NRF Reports E-tailing Still Growing - While retail reels, e-tail is doing even better than expected, according to a report due out today from the National Retail Federation. Of 164 merchants surveyed, most grew in both revenues and profits during 2008. “If you go back to 2008, we did experience double-digit growth in 2008 and we were profitable,” said Denise Incandela, president of Saks Direct, whose experience paralleled the findings in the report. Web divisions grew in revenue by an average of 18 percent. The majority of respondents, 87 percent, were profitable. Of those who were, 57 percent said they were more profitable in 2008 than the year before.“There’s a lot of organic growth in the online business still,” said Incandela. “Prior to the recession, we were growing 30 to 50 percent a year, so it doesn’t surprise me that we would fare better and recover more quickly.” <wwd.com>


-Payless Expands Shoe Giveaway to Latin America - Payless ShoeSource, announced the launch again this year of its Payless Gives Shoes 4 Kids program aimed at delivering more than $1.2 million worth of free children's shoes to families in need this holiday season. In addition, the retailer said it is expanding this year's program internationally across the Western Hemisphere in countries where the majority of its more than 4,500 stores are located. Payless will give more than 77,000 gift coupons redeemable through Feb. 28, 2010, toward a new pair of kids' shoes at any of its stores located in the United States, Canada, Puerto Rico and in 10 Latin American countries including the Dominican Republic, Trinidad & Tobago, Ecuador, Costa Rica, Guatemala, El Salvador, Panama, Honduras, Nicaragua and Colombia. <sportsonesource.com>


-Gap Eyes Growth Online, Overseas - Consumer apathy and product misfires aside, Gap Inc. says it is past the down and dirty turnaround work, has built the foundation to recapture lost shoppers and sees online and overseas expansions as top growth priorities. And in a sign of confidence in its revamped product, Gap brand will return to TV advertising for the November-December holiday period after a two-year absence. These and other initiatives, including store prototypes and entering China next year with company-owned units, were outlined during a three-hour meeting with analysts Thursday. <wwd.com>


-eBay to lay off up to five dozen employees - EBay plans to lay off about 60 employees as part of an internal restructuring plan first announced in a Sept. 21 post on its eBay Ink blog. The blog posting described the overhaul, but did not mention the layoffs. The majority of the job cuts will come from the company’s product and technology areas, a company spokesman says. <internetretailer.com>


-Crocs Amends Credit Facillity - Crocs Inc. said that on October 14, it amended its bank line with PNC Bank. The amendment decreases Crocs' minimum tangible net worth requirement from $266 million to $205 million, measured at the end of each fiscal quarter, commencing with the fiscal quarter ending December 31, 2009.  <sportsonesource.com>


-Superfeet Bolsters Sales Force - Superfeet Worldwide Inc. has hired four experienced sales reps in October to keep pace with their continued growth across the U.S. It also named Doug Geddes as national sales manager of Superfeet Canada. In the U.S., Trevor Patterson joins Superfeet as a Sales Representative in the Northwest with 9 years of experience with Burton Snowboards. Patterson has relocated to Seattle to cover the NW urban market and lend his sales and marketing knowledge to continue building the current Superfeet sales team in Washington, Idaho, Oregon and Montana.  Meanwhile, Superfeet Canada Inc., a subsidiary of Superfeet Worldwide Inc., announced that the appointment of Doug Geddes as Canadian National Sales Manager. Geddes has over 18 years of experience managing a company sales and marketing team as well as owning his own independent sales agency. <sportsonesource.com>


-Quelle Sale Decision Nears - A decision is nearing regarding both the sale of the insolvent Arcandor Group’s catalogue and mail-order division Primondo, and the fate of its challenged Quelle catalogue business, Arcandor said Thursday. Klaus Hubert Görg, insolvency administrator for Quelle, said the fate of the bankrupt catalogue house would be decided by the end of the month. <wwd.com>


-Barneys Unveils Scottsdale Flagship - Barneys New York unveiled its ninth flagship Thursday with the opening of a store here that mixes ultracool and whimsical design and display with touches of the Southwest desert. Barneys joins competitors Neiman Marcus and Nordstrom at the high-end mall, in downtown Scottsdale, while Saks Fifth Avenue is under 10 miles away in Phoenix. The state’s booming population and tourism industry would seem to make Barneys a natural fit despite Scottsdale’s laid-back, outdoor lifestyle. <wwd.com>







  • Alan Cohen, Chairman of the Board, sold 35,000 shares ($385k).
  • Donald Courtney, EVP, sold 16,000 shares ($60k) after exercising the right to buy 16,000 options.


GIII: Deborah Gaertner, President-Women’s  Sales, sold 5,000 shares ($90,000).


HOTT: Elizabeth McLaughlin, CEO, sold 205,000 shares ($1.025mm) after exercising the right to buy 205,000 options.


TJX: Erne Herrman, SEVP-Group President, sold 10,000 shares ($160k) after exercising the right to buy 10,000 options.


URBN: Harry Cherken Jr., Director, sold 10,000 shares ($300k) after exercising the right to buy 10,000 options.



  • Sandra Tillet, EVP-Store Operations, sold 20,000 shares ($350k).
  • Jennifer Salopek, Director sold 4,500 shares ($79k).



  • Howard Levine, CEO, sold 22,000 shares ($616k) after exercising the right to buy 52,000 options.
  • James Kelly, President & COO, sold 13,000 shares ($364k) after exercising the right to buy 39,000 options.
  • Barry Sullivan, EVP, sold 2,000 shares ($56k) after exercising the right to buy 5,000 options.
  • Kenneth Smith, CFO, sold 1,000 shares ($28k) after exercising the right to buy 3,000 options.
  • Charles Sowers, SVP, sold 1,000 shares ($28k) after exercising the right to buy 4,000 options.
  • Dorlisa Flur, EVP, sold 2,000 shares ($56k) after exercising the right to buy 6,000 options.
  • James Snyder, SVP, sold 88 shares ($2k) after exercising the right to buy 300 options.
  • Bryan Venberg, SVP-HR, sold 850 shares ($23k) after exercising the right to buy 3,000 options.
  • Charles Gibson, EVP, sold 3,000 shares ($84k) after exercising the right to buy 9,000 options.


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US Strategy - Slowing of the Beta Trade

On Thursday, the S&P 500 closed at 1,096, up 0.4% on the day.  The S&P 500 has now risen eight of the last nine days; the major index closed yesterday at its best level on the day.


The data points on the MACRO front continue to be positive.  Initial jobless claims fell 10,000 to 514,000 in the week-ended October10th; the lowest level since the beginning of the year. The New York Empire Manufacturing Index surged to 34.6 in October from 18.9 in September, marking the fourth straight monthly increase and the highest reading since May of 2004.  While the Philadelphia Fed Index fell to 11.5 in October from 14.1 in September.  Consensus expectations were for a decline to 12.


Energy commodities were among the best performers in the CRB yesterday.  November crude settled up $2.40 at $ 77.58 a barrel; a one-year high.  Gains were fueled by an unexpected 5.2M barrel draw in gasoline inventories last week, the biggest decline over the past 12-months. 


Consumer Staples (XLP) was the third best performing sector (after the Utilities) as the beta trade seemed to take a bit of a breather.  The XLP also benefited from better-than-expected results out of SWY, which led to a rally in the grocery names. 


The momentum behind the “currency creditability crisis” continued to weigh on the dollar index, which fell for a fourth straight session, finishing down 0.1%.   The risk aversion trade is in full force as the VIX declined for the ninth straight day (5.0%) and is now down 46% year-to-date.  See the Early Look today “Ignorance and Leverage” for more on the creditability crisis.


Yesterday, only three sectors outperformed the S&P 500 and three sectors declined on the day.  The three best performing sectors were Energy (XLE), Consumer Staples (XLP) and Utilities (XLU), while Industrials, Technology (XLK) and Financials (XLF) were the bottom three.    


Today, the set up for the S&P 500 is: TRADE (1,069) and TREND is positive (999).   Day 5 of perfection - the Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 9 of 9 sectors are positive from the TRADE duration.         


The Research Edge Quant models have 1% upside and 2.5% downside in the S&P 500.  At the time of writing the major market futures in the U.S. were in a tight range following the earrings results of GOOG and IBM.   


The Research Edge MACRO team.



US Strategy - Slowing of the Beta Trade - S P500


US Strategy - Slowing of the Beta Trade - s pperf

US Strategy - Slowing of the Beta Trade - s plevels


Yesterday, Hyatt Hotels filed a fourth revised version to its S-1 originally filed on August 5th.  This latest version gave another interesting glimpse into the disputes of the Pritzker family, which are partially responsible for the timing of this IPO. 



The latest round of changes allows certain members of the Pritzker plan to dispose their stock more rapidly in Hyatt while allowing others that want to stay involved in the company more voting rights in accordance with percentage ownership. Bottom line, these changes will allow those members who want out to get out and ease internal family conflicts.   The three main amendments to the Global Hyatt Agreement and the Foreign Global Hyatt Agreement are summarized below, as they related to Pritzker family members and their spouses.

  • Changed the basis upon which voting power is determined to % ownership basis
    • Duration of the voting and lock-up restrictions will now be measured on percentage of ownership versus voting power of shares for stock that is owned by Pritzker family members
  • Increased the % of restricted common stock that can be sold to 25% of holdings annually vs 20%
    • Pritzker family members are now permitted to sell up to 25% of their aggregate holdings of Hyatt common stock, measured as of the date of effectiveness of the registration statement, and each twelve-month period following rather than 20%.
    • Additionally, the prohibition on selling shares to any aggregator, disclosing an intent other than for investment was removed
  • Allows Pritzker family members that aren’t “restricted” to sell 100% of their stock faster
    • Distribution of Hyatt stock for the benefit of any Pritzker family members as soon as practicable following the date of effectiveness of the registration statement, subject to the 180-day lock-up period. 
    • Pritzker family members, other than those who are party to the Agreement Relating to Stock, may now sell up to 100% of their common stock over a shorter period of time. 

The IPO is coming and we will have a lot more to say in the weeks ahead.  Hyatt is a powerful brand and this IPO is interesting on levels more than just a big name hotel company going public.  Should the ownership structure justify a discount?  Will the Street get the margins right?  Is now the right time?  What differentiates Hyatt from the competition?  These are all questions we will address ahead of the IPO.

Ignorance and Leverage

“When you combine ignorance and leverage, you get some pretty interesting results.”
-Warren Buffett
Last night CNBC had clips of Maria Bartiromo interviewing Tim Geithner. That was quite the combo.  Combining economic ignorance with the levered long leader of the willfully blind is pretty interesting Mr. Buffett, indeed!
On the question of leverage, Geithner proclaimed his mystery of faith stating that “credit is the oxygen”…
On the question of plans to address the Burning Buck… well… Geithner didn’t have any…
I couldn’t make this up if I tried, but rather than provide Bartiromo with a proactive plan to address the Currency Crisis, Geithner said that he doesn’t usually talk about daily activity in the currency markets. Timmy, understanding that the daily analysis is more of a real-time risk management approach, how about weekly or monthly? Quarterly? Annually? Newsflash: the US Dollar is down another -2.2% this week and has lost -16% of its value since March! Wakeup.
Never mind the marked-to-market price, Geithner went on to point out that the US Dollar’s strength was most readily apparent when the world was screaming with fear. Finally, he concluded that, as a result of how the US Dollar acted during last year’s apocalypse, the US Dollar’s strength remains readily apparent.
This guy was serious. Under this line of thinking, I guess all we have to do is create another Global Leverage Crisis and we’ll get our currency back! While hope is not an investment process, I can only hope that the Chinese and Japanese didn’t watch the YouTube of those CNBC clips…
This morning the Buck continues to Burn. Are they Bombing Out The Buck? Or are they just getting started? Niall Fergusson at Harvard thinks that the bombing is going to be for another -20% down move in the US Dollar within the next 6-12 months. I like Niall’s research, a lot. But Niall, if that happens… all I have to say is ‘lock the barn doors Sally’, because every American with a pitchfork is going to be coming at those of us who work in Financial Services.
Away from not trusting him, my biggest issue with Tim Geithner has to do with competence. He doesn’t do global macro, so I don’t think he really has any idea how to approach this secular Global Currency Diversification exercise. Being a New York centric banking man has its privileges to the Groupthink Suite.
If Geithner’s answers pertaining to the US Dollar last night weren’t alarming enough, here’s what the Treasury issued as a statement to The Client (China) this morning:
“Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G-20 framework”…
Again, I couldn’t make this up if I tried, but Geithner is so clueless right now that he is choosing to antagonize the Chinese in the Treasury’s semi-annual report on currency policy. The Chinese are already a net seller of US Treasuries and Dollars. What are you doing Timmy? Wakeup.
If you are looking for another opinion on this other than mine and Fergusson’s, here’s Alan Greenspan’s this morning: “I’m not overly concerned about the most recent decline in the dollar”…

Gee, thanks Alan. You haven’t been concerned about this country’s currency for a long time. Now your boy, Bernanke, is following your lead. We issue our citizenry a ZERO percent return on their savings accounts, fire up the inflation machines, and are teeing up Investment Banking Inc. to pay out more bonuses on the back of this Piggy Banker yield curve in 2009 than we did in the year that preceded this said “Great Depression”!
Never mind the long term implications of the US Dollar trading close to 38 year lows. This, of course, is all just fantastic for the US stock market in the immediate term. We Bomb the Buck, and everything priced in bucks reflates. Yesterday, I called this the Minsky Meltup. Today, I’ll call it the same.
The Minsky Model isn’t one that the levered loan originators of Investment Banking Inc. like to read about. Shhh – keep that under wraps. Ignorance and leverage is a powerful compensation structure for those who have an entitlement to game the US Financial System.
My immediate term upside resistance level this morning for the SP500 is at yet another higher-high (1103) and my immediate term TRADE support line is at another higher-low (1069). Meltem’ up boys, and hope that the American people are as ignorant as Geithner in understanding that the last crisis was born out of a weak-dollar debt-financed asset-price-appreciation bubble.
Best of luck out there today and have a great weekend with your families,

XLU – SPDR Utilities We bought low beta Utilities with a reasonable dividend yield on 10/13.

EWT – iShares Taiwan With the introduction of “Panda Diplomacy” Taiwan has found itself growing closer to mainland China. Although the politics remain awkward, the business opportunities are massive and the private sector, now almost fully emerged from state dominance, has rushed to both service “the client” and to make capital investments there.  With an export industry base heavily weighted towards technology and communications equipment, Taiwanese companies are in the right place at the right time to catch the wave of increased consumer spending spurred by Beijing’s massive stimulus package.

EWG – iShares Germany Chancellor Angela Merkel won reelection with her pro-business coalition partners the Free Democrats. We expect to see continued leadership from her team with a focus on economic growth, including tax cuts. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; with fundamentals improving in a low CPI/interest rate environment, we expect slow but steady economic improvement from Europe’s largest economy.

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.

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.   

XLV – SPDR Healthcare We’re finally getting the correction we’ve been calling for in Healthcare. We like defensible growth with an M&A tailwind. Our Healthcare sector head Tom Tobin remains bullish on fading the “public plan” at a price.

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.

XHB – SPDR Homebuilders We were the bulls on a Q2 housing turn but, as the facts change so do we: now we are getting cautious on 1H 2010 US Housing. Rates up as access to capital tightens is not good for new home builders as we enter into a new year and series of potential catalysts for renewed pressure in the secondary market, including the expiration of the $8,000 tax credit.

USO – US OIL Fund WTIC Oil traded just north of our overbought line on 10/12. With the US Dollar hitting another higher-low, we shorted more of oil’s curve.

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.

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