Our macro math suggests declining discretionary spending over the next 5 quarters.  It could be even worse for casinos since their share of the discretionary wallet is already on the decline.



GDP = C + I + G + (EX – IM).  While the G may be expanding, C probably won’t.  Discretionary sectors are likely to see a smaller and smaller proportion of the consumer’s “wallet” over the next year or so.  As shown in the table below, our macro forecasts and healthcare cost projections indicate that 2010 will bring an accelerating drop in non-essential consumer spending, culminating in a $124 billion year over year decline (-11.4%) in Q3 of 2010.  Q3 2009 is looking more and more like an anomaly which makes it a very difficult comparison.  Due to leisure spending, both lodging companies and the cruiselines reported better than expected Q3 revenues.  For all of 2010 Research Edge projects a 5.2% decline in discretionary consumer spending. 






Despite GDP growth and the market rally since March, unemployment continues to increase.  As we have written about at length recently, gas prices are also going to negatively impact consumers’ spending power for the remainder of 2009 and into 2010.  For consumer spending on casino gambling and hotels, in particular, our post, “WHAT GOES UP…” (09/10/2009), shows that gaming is in a mean reversion period in terms of a percentage of personal consumption expenditure.  Gaming was strongly levered to the fifteen-year rip in housing-fueled PCE that ended in 2008.  A one-two punch of a smaller allocation of a more frugal consumer’s wallet could meaningfully impact the gaming industry’s top line next year.





While everyone gears up for Sales Day, here are some bigger picture points that we’ve picked up on in days that further highlight the changing industry landscape.




Some Notable Call Outs


  • As the world watches the success and growth of online retailers such as Amazon, one must take a look at Ebay’s latest venture for the holiday season. For a limited time beginning November 20th, Ebay will open a pop-up store in midtown Manhattan selling apparel, cosmetics, electronics, toys, and home products. The offering appears to be in partnership with a small list of well recognized brands looking to drum up some “buzz” over the holiday season. Are online retailers recognizing that they need a physical presence as well? Probably not, but this is certainly noteworthy.


  • With the buzz building around the Dollar General IPO, I wanted to highlight a retailer that we’re sure to see come public over the next couple of years. Five Below is the latest incarnation of the “dollar store” model, with all items priced between $1-$5. The retailer focuses on trend right products primarily for teen and tween consumers (ranging from candy to electronics). The chain currently operates 102 stores, and expects to double by the end of next year. It’s amazing how much better merchandising can be when pricing expands five-fold to $5!


  • I prefer not to recycle the news, but the latest data point out of Japan’s Fast Retailing unit, UNIQLO, is worth repeating. The company, which is predominantly anchored in Japan, but has one store in NYC, just reported a 36% increase in same-store sales for October. The company’s value priced basic merchandising offerings (think Gap) mixed with a small amount of fashion product (this month launched J+, a collaboration with Jil Sander) is resonating with consumers across the globe. Given this success, and the recent line out the door in Soho during the J+ launch, it will not be long before UNIQLO looks to build a bigger presence here in the US.



  • We love quantifying things at Research Edge. But occasionally we’ll take note of something that takes us into the dreaded ‘qualitative’ analytical zone (if there is such a thing).  Here’s an observation… We all know that over the past several years retailers have become more efficient with inventory management which is some ways has resulted in lower-risk, better executed seasonal transitions.  So with Halloween now over, the biggest and most important transition is about to be underway.  Or is it?  I have been noticing what I’m calling the “Christmas Creep”  lately.  This is merely the phenomenon where retailers are setting Christmas displays, decorations, and merchandise even before Halloween was over.  Traditionally, Thanksgiving and Black Friday have marked the official beginning of the holiday season.  Not so in 2009.  I’m not sure if creating an in-store atmosphere really induces early holiday shopping or just annoys consumers.  To me it seems that an extra month of in your face holiday marketing and hype might lead to “holiday fatigue”. 


With anecdotes still coming out of WalMart surrounding pronounced payroll cycles, do retailers really expect these cash strapped consumers to step up and get their holiday shopping done before the Macy’s Day Parade?  Offensive, goofy, or simply a case of trying too hard to give people a reason to shop, one thing is sure.  The longer holiday merchandise sits out there, the more risk ensues that some retailers will become impatient and pull the promotional trigger.  And if you’re totally confused by all of this, just dig through your recycling bin to find last weekend’s circulars which included holiday kickoffs from Best Buy, Target, and Toys R Us. Happy Holidays!





WTO Report Shows Global Exports Holding Ground - Apparel exports have fared better than other types of consumer goods during the global financial downturn, according to a recent study from the World Trade Organization. Global apparel exports showed “a mere 2.1 percent decline” during the fourth quarter of 2008, said the report, marking the only contracting quarter of the year. Between January and September, the value of exports grew 4.6 percent to $362 billion. China showed strength during the last quarter of the year, with the value of its apparel exports rising 10.9 percent. The country was ranked as the world’s top apparel exporter last year, with shipments up 4 percent to $120 billion. China’s exports to the U.S. were flat at $28.5 billion, but exports to the European Union spiked 23 percent to $39.8 billion. <>


Stanley, Black & Decker to Combine on Fourth Try in 3 Decades - Stanley Works agreed to purchase Black & Decker Corp. yesterday for $3.5 billion in stock after on-and-off talks that spanned almost three decades. The companies discussed combining three other times over about 27 years, Black & Decker Chief Executive Officer Nolan Archibald said in an interview. Stanley Works’ offer values Black & Decker, the maker of DeWalt power drills and Price Pfister faucets, at about $57.57 a share, or 22 percent more than yesterday’s closing price. <>


Steiner Agrees to Buy Bliss for $100M - Steiner Leisure Ltd. has agreed to acquire Bliss World Holdings, Inc. from Starwood Hotels & Resorts Worldwide Inc. for $100 million, a divestiture that will allow Starwood to focus more closely on its core hospitality business, the firm stated Monday. The deal, expected to close on or before Dec. 31, calls for Steiner to purchase all the issued and outstanding capital stock of Bliss. The acquisition is expected to be slightly accretive to Steiner’s 2010 earnings, according to the company, which operates spas and salons on 126 cruise ships and in 51 resort spas and two luxury day spas. <>


Amazon Closes Zappos Acquisition -, Inc. completed its acquisition of Thanks to an increase in Amazon's stock price, Amazon will pay $1.2 billion, or $117.4 a share, for the business,  up from $928 million when the deal was first announced on July 22, 2009. As expected, the Zappos management team will remain intact and the company will continue to operate as a wholly-owned subsidiary with headquarters in Las Vegas, NV. In a letter to employees entitled "It's official!," Tony Hsieh, CEO,, wrote: Earlier this year, on July 22, we signed an agreement to join forces with Amazon. As I mentioned in my email to employees at the time, we plan to continue to run Zappos the way we have always run Zappos -- continuing to do what we believe is best for our brand, our culture, and our business. <>


Luxury apparel retailer leaps in Hong Kong debut - Shares of Trinity Ltd. jumped in Hong Kong on their first day of trading Tuesday, with investors drawn to the stock on the basis of its association with global brand supply-chain manager Li & Fung Ltd. Trinity's shares ended the morning session at 2.69 Hong Kong dollars (35 U.S. cents), up 62% from its initial offer price, after trading as high at 82%. The company -- a retailer of branded menswear such as like Cerruti 1881, Gieves & Hawkes and Kent & Curwen -- raised $96 million in its initial public offer last month. <>


With CIT in Bankruptcy, Industry Holds Its Breath - The pressure is still on at CIT Group Inc. Even with the filing of a prepackaged Chapter 11 bankruptcy petition in Manhattan federal court Sunday, serious questions remain about the lender’s business, which is responsible for about 60 percent of factoring volume to the U.S. apparel industry — including the status of new contracts. And a sale of the factoring unit, considered CIT’s crown jewel, cannot be ruled out. <>


Study Predicts Online Holiday Sales Boost - A Forrester Research Inc. report predicted Monday that online retail sales in all categories except travel will reach $44.7 billion during November and December, an increase of 8 percent over 2008. Relatively slow sales following the collapse of Lehman Brothers and the freezing of the credit markets in October last year make it easier for retailers to show strong growth this holiday period, the report acknowledged. In addition, the number of consumers saying they plan to buy products and services online this season increased 2 percent to 94 percent this year. Among retailers, 72 percent said they expect an increase in sales in the period. <>


Best Buy to Open Online Store for Movies With Sonic Solutions - Best Buy Co., the world’s largest electronics retailer, will start an online store for movies and television shows that will compete with Apple Inc.’s iTunes. The service will use technology licensed from Sonic Solutions Inc., according to a statement today from both companies. Sonic’s Roxio CinemaNow system will be installed on televisions, computers, Blu-ray players, set-top boxes and mobile phones sold by Richfield, Minnesota-based Best Buy. The digital video store expands Best Buy’s foray into services, helping the company increase customer loyalty, Chief Executive Officer Brian Dunn said in the statement. <>


Escada Insolvency Proceedings Begin - Insolvency proceedings over the assets of Escada AG were opened Sunday at the Munich Municipal court. The acting insolvency administrator, Munich attorney Christian Gerloff, now has the power of administration and control over all assets and the power of representation of Escada. The company filed an insolvency petition on Aug. 13. <>


Brazil: Leather exports down 48% in value - Brazil’s hide and leather exports brought in US$ 791 million in export revenues between January and September, down by 48% compared to the same period a year ago. However, the Brazilian Tanners Council (CICB) has pointed out that exports have been slowly recovering and increased by 10% in volume terms during September 2009 compared to the month before. The organisation also said that a higher proportion of leather exports are now leaving Brazil as crust or finished leather, meaning that Brazilian tanners are adding more value than before to their country’s raw material. <>


Hong Kong: Retail sales growth back on track in September - Hong Kong's retail sales in September grew by 2.4% year on year to HK$21.4 billion, according to the Census and Statistics Department of the Hong Kong SAR government. After netting out the effect of price changes over the same period, the volume of retail sales increased by 1.0% year on year in September. "The retail sales reverted to a small year-on-year increase in September after falling for seven consecutive months, in tandem with a further improvement in local consumer spending and also the revival in inbound tourism," a spokesman said. <>


Textile Plan in Pakistan Founders - Despite the support of the All Pakistan Textile Mills Association, the country’s new five-year textile policy hasn’t been implemented after three months. The initiative focuses on gas and electricity supply, full refund of past research and development claims, availability of 5 percent export refinancing, relief on long-term loans and tax free import of machinery. <>


Jordan Addresses Alleged Abuses in Garment Sector - Jordan instituted reforms of its labor laws and strengthened its labor compliance and monitoring over the last year in an effort to address concerns about alleged abuses in the country’s apparel sector, the minister of labor said Wednesday. Gazi Shbaikat, Jordan’s labor minister, and a delegation of officials from the Ministry of Labor unveiled a progress report and met with industry executives and U.S. officials last week to detail the country’s labor reform efforts in the apparel sector. <>


Dick's SG to Open First Store In Washington - Dick's Sporting Goods plans to open its first Washington store at South Hill Mall in Puyallup next spring, according to the Seattle Times. The 60,000 square feet store covers space previously occupied by Circuit City and Linens 'n Things. It had been empty since the two chains closed all their stores in the past year. Helped by it's acquisition of Chick's Sporting Goods, Dick's SG operates now has 15 stores in California. It has one in Oregon, with six more locations there "coming soon," many of them for Joe's Sports locations. <>


New York & Co. Sues Penney's Over Ads - New York & Company Inc. has asked a federal court to halt a J.C. Penney Co. Inc. ad campaign that it says infringes on its own. In a lawsuit filed last week in U.S. District Court in Manhattan, the New York-based specialty retailer alleged that Penney’s “NYC Style” slogan treads too closely to the “NY Style” tag line it has used since August 2008. <>


Lucy Celebrates 10 Years - Lucy Activewear, a division of VF Corp., will celebrate its 10th year in business this month.To honor the anniversary, the brand is launching a contest inviting customers to share their inspiration. Customers can enter on the lucy Facebook wall at and/or via e-mail at . The top entry in the video category wins a $500 shopping spree and the leading essay entry wins $250 to spend at lucy. <>

Perceived Knowledge

"A little knowledge is dangerous. So is a lot.”
-Albert Einstein

We have learned a little about a lot in the last few weeks. If the Bombed Out Buck stops burning, most things priced in bucks stop going up.
A little knowledge about this dominant global macro inverse correlation can be dangerous. If you get the timing wrong, you can really get whipped around. Does market timing matter? After the last 18 months, you tell me…
The reality is that most people have a lot of knowledge that they cannot time markets. They have tried. So take their word for it. However, some people can time markets, and they should continue to outperform this year as a result of their risk management discipline.
A little knowledge about the US Dollar’s impact has had the Gold bears pile on with their “gold bugs will get crushed if the Dollar rallies” call. Combine that view with a little perceived knowledge that the “IMF is selling gold” and you have some short sellers of yellow rocks that believed that their “information” was going to get them paid. Perceived knowledge can be dangerous.
With the US Dollar breaking out again above my critical immediate term TRADE line of $76.20, most things priced in US Dollars are set to open down this morning. Crude oil is down at $77.28/barrel. Copper is down at $2.91/lb. Gold is up.
Gold is up. Yes. Market prices don’t lie; people do. The IMF was indeed selling gold, but it wasn’t to the Chinese! It was to India. For the first time in 9 years, the IMF sold the equivalent of 8% of the annual global production of gold to a country. That’s a lot!
India just bought 200 tons of gold. That’s a 56% addition to India’s current gold reserves of 358 tons, and that puts India in the top 10 holders of gold globally. More important than the size of this purchase is the supply side of this equation. If the Chinese want to get anywhere in the area code of what I would consider a reasonable level of gold as a percentage of total Chinese reserves, they’d need to buy 10 times that.
A little knowledge about what China needs can be dangerous. If the US Dollar goes up, a lot of those things that people think China needs will go down. A lot of knowledge about China’s intentions of moving away from the US Dollar as their main currency exposure can also be dangerous. With only 1% of total reserves held in Gold, you can get very dangerous upside price targets in gold if you truly believe in your knowledge of China’s long term intentions.
Since I have a 10% position in it, I get a lot of questions about gold. Is being long gold consensus? What if I continue to be right on the Dollar’s relationship with asset prices? Could an up Dollar mean down gold?
Usually, the best way to answer a macro question is to let Mr. Macro Market give it to us, real time. As surprising as this is, since October 21st when the US Dollar marked its year-to-date lows, it has rallied a full 200 basis points, and the price of Gold has not budged. On the morning of 10/21 Gold was trading $1055/oz, and this morning it’s trading up (despite the US Dollar being up) at $1058/oz.
Is Gold going up because it’s a global currency that countries can trust? Is Gold going up because there is more demand than supply? Is Gold going up because we are witnessing the initial phase of a massive Global Diversification trade away from a world that held 64% of total currency reserves in US Dollars?
I’ll let you dig in on some of the answers to these questions. My only advice helping augment your search for this knowledge is this: don’t call an “expert network” for the answer unless you speak Mandarin and the call you are making is long distance…
Ahead of the Bernanke’s FOMC decision on rates tomorrow, the US Dollar is breaking out from an immediate term TRADE perspective. My immediate term TRADE line for the US Dollar, again, is $76.20 and my intermediate term TREND line is $77.59.
Is Bernanke going to pander to the most politicized policy America has ever seen, or is he going to rightly signal an end of an emergency level of ZERO percent for America’s citizenry of savers? I have no idea. The US Financial System is far too conflicted and compromised for me to hazard a guess. For God, for Country, and for Gold … or something like that… that’s what a little Ivy League knowledge will get you this morning from New Haven about the Fed’s upcoming decision – not a lot.
My immediate term support and resistance levels for the SP500 are now 1023 and 1065, respectively.
Best of luck out there today,



EWZ – iShares Brazil President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt –leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. Brazil is a major producer of commodities. We believe the country’s profile matches up well with our reflation call.

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.


XLU – SPDR Utilities We bought low beta Utilities on discount (down 1%) on 10/20. TRADE and TREND bearish.

FXC – CurrencyShares Canadian Dollar We bought the Canadian Dollar on a big pullback on 10/20 and again on 10/28. The TREND and TAIL lines for the Canadian Dollar remain bullish.

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.

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.   

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.

XLY – SPDR Consumer Discretionary
We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30. The sector is finally broken, from an immediate term TRADE perspective.

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.

UUP – PowerShares US Dollar We re-shorted the US Dollar on strength on 10/20. There continues to be no government plan to support it.

FXB – CurrencyShares British Pound Sterling
The Pound is the only major currency that looks remotely as precarious as the US Dollar. We shorted the Pound into strength on 10/16.

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.

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 80.52%
  • SHORT SIGNALS 78.67%


On Monday the UUP, which is the etf for the U.S. dollar index, was down 0.4%, although the dollar is still above the trade line.  As a consequence the S&P 500 closed at 1,042, up 0.6% on the day. 


On the MACRO front, the S&P 500 started the week on a positive note as the RECOVERY theme came back into focus following some better-than-expected economic data on the continued manufacturing expansion in China. Additionally, in the USA the ISM manufacturing index rose to 55.7 in October from 52.6 in September, ahead of consensus expectations of 53. The headline reading was the strongest since April of 2006, as was the employment component, which jumped to 53.1 from 46.2 in September, moving into expansionary territory for the first time since July of 2008.


The earnings and outlook from Ford was another positive, as was an upgrade of MOT by our Technology analyst Rebecca Runkle, one of her favorite names.  While the market finished higher on the day there seemed to be plenty of concerns surrounding last week's selloff and technical deterioration – only one sector is bullish on both the TRADE and TREND. In addition, there is a defensive tone to the market despite some better MACRO data points.  Not to mention some cautiousness surrounding Wednesday's FOMC meeting and Friday's release of the October non-farm payrolls data.


Also on the MACRO front, pending home sales increased 6.1% in September following a 6.4% rise in August, significantly above the consensus of 0.00%. September marked the eighth straight monthly gain and the highest level since December 2006, leaving sales up nearly 40% from the January low. This is probably as good as it gets as I would expect to see October pending home sales may see a sharp pullback with the looming expiration of the homebuyer tax credit. 


On the day the VIX declined 3.0%, taking a breather from last week’s massive move up. 


The three best performing sectors were Industrials (XLI), Consumer Staples (XLP) and Consumer Discretionary (XLY), while Technology (XLK), Healthcare (XLV) and Utilities (XLU) were the bottom three.  The only sector down on the day was Utilities. 


Today, the set up for the S&P 500 is: TRADE (1,026) and TREND is positive (1,023).   The Research Edge quantitative models have 7 of 9 sectors in the S&P 500 positive on TREND and 1 of 9 sectors are positive from the TRADE duration.  Consumer Staples is the only sector positive on both durations. 


The Research Edge Quant models have 2% upside and 2% downside in the S&P 500.  At the time of writing the major market futures are poised to open up small to the down side. 


The Research Edge MACRO Team.






November 3rd, 2009



Las Vegas Sands has released detailed information on its Macau operations ahead of its initial public offering from which it hopes to raise some $2.5billion.  Yesterday the company said it had completed its listing committee hearing with the exchange and was awaiting the formal approval for the listing of its subsidiary Sands China Ltd.  As part of the approval process with the Hong Kong stock exchange, Sands posted a lengthy “Web Proof Information Pack” on the exchange’s website.  The information pack forecasts 2009 adjusted EBITDAR of $803 million from LVS’ Macau operations, up from $686 million in 2008.

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